1— t; 

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3—0 

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8— T 
9—1 

10— t 

11—: 


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Questions  of  the  Day.     No.  LX. 


The    Public    Regulation 
OF  Railways 


W.  D.  DABNEY 
%\ 

FORMERLY    CHAIRMAN    OF    THE    COMMITTEE    0\    RAILWAYS    AM)    INTERNAL 
NAYIGATION    IN   THE   LEGISLATURE    OF    YIRGINLA 


NEW  YORK  &  LONDON 

G.  P.  PUTNAM'S    SONS 

C^c  Jlnitlurboclur  press 
1889 


COPYRIGHT   BY 

G.  P.  PUTNAM'S  SONS 


"Cbe  Tftnicfterboclier  ipreos 

Electrotyped  and  Printed  by 
G.  P.  Putnam's  Sons 


HE 
1051 


CONTENTS. 


PAGE 

Public  Regulation  of  Railways:  Its  Legal  and  Eco- 
nomic Aspects  Briefly  Considered  ....  1-5 
Chapter  I. —  The  Legal  Aspects  of  the  Question  .  5-26 
Sources  of  Legislative  Power. — The  Railroad  a  Public  High- 
way.— Eminent  Domain  and  Taxation  in  Aid_of  itsConstruc- 
•■tion. — GenefafCornpetition  over  Railroads. — Interchange  of 
^^  Traffic. — Public  Character  of  Uses  to  Which  Railroad  Property 

^  is  Dedicated. — Mode  of  Use  and   Price  of   Use  Matters  of 

r\j  Legislative  Regulation,  unless  Restricted  by  Charter  Contracts, 

-a:  — Delegation  of  Power. 

Chapter  II. .         27-44 

Limitation  on.  Legislative  Power  Arising  from  Charter  Con- 
tracts.— Strictly   Construed^  against    the    Corporations. — Not 
■^  Binding  Where  Power  to  Amend,  Alter,  or  Repeal  Charters  is 

^  Reserved  to  the  Legislature. — Examples  of  Application  of  the 

Power  to  Amend,  Alter,  or  Repeal. — ^Dual  Character  of  Rail- 
^  road  Property  Considered. — Private  Ownership  Restricted  to 

■^  Public    Use. — Right   of    Public    Use    Paramount   to    Private 

O  Ownership. 

n-        Chapter  III 45-65 


u. 
C9 


Limitation  on  Legislative  Power  Arising  from  the  Private 
Property  Rights  of  Owners  of  Railways  or  Railway  Securities. 
— Power  to  Regulate  Railway  Charges,  Analogous  to  Power  of 
EniiiiLiii  I  »uniain. — Can  Only  be  Exercised  for  the  Accomplish- 
ment of  Scjinc  Public  Good,  and  must  Not  Deprive  Owners  of 
Reasonable  Income  on  Just  Value  of  Property. — Just  Value 
Distinguished  from  Capitalization. — Regulation  not  Equivalent 


431G93 


iv  CONTENTS. 

PAGE 

to  Confiscation. — Distinction  between  Charges  Fixed  by  Public 
Authority  for  Specific  Services,  and  the  Entire  Schedule  of 
Rates  as  a  Whole. — The  Latter  Ultimately  Subject  to  Judicial 
Revision. — The  Tilley  Case  (U.  S.  Circuit  Court  in  Georgia) 
and  Cases  from  Supreme  Court  Compared. — Recent  Iowa 
Cases. 

Chapter  IV 66-88 

Limitation  on  State  Powers  Arising  from  Exclusive  Right  of 
Congress  to  "  Regulate  Commerce  among  the  States." — Inter- 
state Commerce  Defined  and  Illustrated. — States  cannot  Regu- 
late (^harges  Thereon,  and  Probably  cannot  Prevent  Traffic 
Arrangements  between  Its  Own  and  Foreign  Corporations  in 
Respect  Thereto. — But  Leases  and  Consolidations  between 
Domestic  and  Foreign  Corporations  Probably  under  Control 
of  States  and  not  of  Congress. — Sources  and  Limitations  of 
Powers  of  Congress  Discussed. 

Chapter  V. —  The  Econortnc  Aspects  of  the  Question    89-131 

Extortion. — Discriminations  of  Various  Kinds. — Relations  of 
Railroads  to  Each  Other  and  to  Water  Routes. — Results 
thereof. — Competition  and  Monopoly. — Relative  Charges  for 
Long  and  Short  Distances. — Illustrations  and  Effects  Thereof. 
Discussion  of  the  Long-  and  Short-Haul  Question. — Under 
W^hat  Circumstances  and  Conditions  a  Greater  Charge  for  a 
Shorter  Haul  Justifiable. — Illustrations  and  Analogies. 

Chapter  VI.       .......         132-174 

Personal  Discriminations. — Resulting  from  Excessive  Compe- 
tition ;  from  Supposed  Advantages  to  Accrue  to  the  Railroads 
Therefrom  ;  from  Mere  Favoritism. — Never  Justifiable. — Dis- 
tinguished from  Local  Discriminations. — Difficulty  of  Detec- 
tion.— The  Pooling  System. — Differential  Rates. — Unnecessary 
Railroad  Building. — Division  of  Territory. — Consolidations. — 
Discrimination  between  Different  Kinds  of  Traffic,  or  Classifi- 
cation of  Freight. — Value  and  Risk,  and  Not  Cost  of  Service, 
the  Basis  of  Classification. — Necessity  to  the  Public  Welfare 
of  the  Adoption  of  this  Basis. — Abuses. 


CONTENTS.  V 

PAGE 

Chapter  VII. 175-205 

Methods  Adopted  or  Proposed  to  Prevent  Extortion  and 
Unjust  Discrimination. — Publication  of  Rates. — Statistical 
Reports. — English  "  Railway  and  Canal  Traffic  Act." — Re- 
medial Statutes  Usually  of  Little  Avail. — The  Commission 
System. — Power  to  Fix  Rates  ;  to  Revise  Rates  ;  to  Hear  and 
Decide  Complaints  ;  to  Hear  Complaints  and  Make  Recom- 
mendations. —  Examples.  —  Georgia  and  Massachusetts. — 
Theory  of  General  Unrestricted  Competition  over  the  Same 
Line  of  Road  Reviewed. — Destructive  of  Commerce  in  Many 
Necessities  of  Life. — Monopoly  Essential  to  Public  Interest. 
— Theory  of  Public  Ownership  Reviewed. — Would  Fail  to  Pre- 
vent Discriminations. 

Chapter  VIII. —  The  Interstate  Commerce  Act  .         206-261 
Analysis  of  the  Act. — Powers  of  Commission. — Decisions  con- 
cerning  Long   and    Short    Haul. — Discriminations    between 
Places,  Persons,  and  Kinds  of  Traffic. — Effects  of  the  Act. — 
Tendency  toward  Combination. — A  Railway  "  Trust." 

Chapter  IX. — Express  Traffic  .  .  .  262-281 
The  Relations  of  Express  to  Railroad  Carriers  one  of  Contract 
Merely. ^Effect  of  Wars  of  Express  Rates  on  Railway  Charges 
and  Earnings. — The  Express  Company  the  Means  of  Warfare 
between  Rival  Railroads. — The  Case  of  the  Express  Companies 
before  Congress  and  the  Commission. 


PUBLIC    REGULATION    OF   RAILWAYS: 

ITS  LEGAL  AND  ECONOMIC  ASPECTS  BRIEFLY 
CONSIDERED. 


Having  occupied  the  position  of  chairman  of  a  legis- 
lative committee,  entrusted  with  the  preparation  of  legis- 
lation upon  this  subject,  I  was  unable  to  find  in  con- 
venient and  accessible  form  a  discussion  of  many  of  the 
difificulties  which  surround  it. 

Among  a  number  of  works  examined,  that  of  Professor 
Hadley  entitled  "  Railroad  Transportation  "  was  found 
the  most  interesting  and  valuable.  But  even  this — ad- 
mirable as  the  treatise  is — responds  either  inadequately 
or  not  at  all  to  many  inquiries  which  arise  in  the  attempt 
to  formulate  legislation.  In  the  four  years  which  have 
elapsed  since  the  publication  of  Mr.  Hadley's  work,  much 
new  light  has  been  thrown  upon  the  general  question, 
and  with  its  aid  I  have  attempted  in  the  following  pages 
to  make  some  suggestions  of  a  practical  character,  upon  a 
subject  whose  intricacies  can  only  be  appreciated  by  one 
who  has  attempted  their  solution. 

I 


2  PUBLIC  REGULATION  OF  RAILWA  YS. 

The  title  which,  for  w^nt  of  a  better,  has  been  prefixed 
to  this  essay  may,  however,  imply  an  undertaking  which 
is  far  beyond  its  scope.  It  is  proper  therefore  to  say  that 
it  proposes  to  deal  only  with  the  commercial  or  traffic  re- 
lations of  the  railw.gj''  system  to  the  public,  and  contem- 
plates no  di'stiassioh  oi  \}i^oiQ.  police  powers  z.x\di  regulations 
which  pertain  to  the  physical  condition  of  railroads,  and 
their  operation  with  reference  to  public  safety  and  con- 
venience. It  is  intended  to  be  suggestive  only,  not  ex- 
haustive. Its  object  is  merely:  ist,  to  point  out  in  as 
plain  and  popular  a  manner  as  possible  a  few  principles 
which  have  been  authoritatively  laid  down,  defining  or 
suggesting  the  sources  and  the  limitations  of  legislative 
power  in  this  country  over  railroads  and  railroad  transpor- 
tation ;  and  2d,  to  discuss  briefly  the  chief  causes  of  com- 
plaint against  railway  practices  in  the  United  States,  and 
the  methods,  policy,  and  propriety  of  public  regulation  of 
commerce  by  railways. 

On  the  subject  of  legislative  authority,  the  decisions  of 
the  United  States  Supreme  Court  will  be  appealed  to, 
almost  exclusively — that  tribunal  having  the  ultimate 
determination  of  nearly  all  questions  of  that  character. 
One  or  two  important  cases  in  the  lower  Federal  courts 
will,  however,  also  be  commented  upon,  and  a  fev/  in  the 
higher  State  courts  will  be  referred  to. 

The  discussion  of  the  economic  aspects  of  the  question 
will  be  based  principally  upon  material  contained  in  the 
reports  and  decisions  of  the  Interstate  Commerce  Com- 


LEGAL   AND  ECONOMIC  ASPECTS.  3 

mission,  and  in  the  testimony  and  arguments  adduced 
before  that  body ;  in  reports  of  various  State  Railroad 
Commissions,  reports  of  the  National  Bureau  of  Statistics, 
reports  of  investigating  committees  of  legislative  bodies, 
and  the  testimony  taken  by  them,  and  especially  upon 
the  report  made  and  the  testimony  taken  by  the  select 
committee  of  the  United  States  Senate,  commonly  called 
the  "  Cullom  Committee." 

References  to  authorities  will  usually  be  specifically 
given,  but  in  the  course  of  inquiries  into  this  subject,  in 
which  as  a  member  of  a  legislative  body  I  have  taken 
part,  much  valuable  information  has  been  given  me  which 
I  can  only  acknowledge  in  a  general  way.  Certain  facts 
and  principles  apparently  well  established  will  be  com- 
mented on  to  illustrate  the  necessity  for  some  public 
supervision  over  the  railroad  system,  and  certain  circum- 
stances and  conditions  of  railroad  transportation  will  be 
discussed  and  illustrated,  which  make  some  of  the  most 
popular  legislative  enactments  upon  this  subject  of  very 
doubtful  propriety  and  probably  harmful  results. 

A  brief  analysis  will  be  given  of  the  law  of  Congress 
commonly  called  the  "  Interstate  Commerce  Act,"  and  a 
short  r^SMue  of  a  few  of  the  principal  rulings  and  deci- 
sions of  the  commission  under  that  act,  to  illustrate  its 
practical  operation. 

The  vast  and  growing  importance  of  the  express  busi- 
ness in  the  commerce  of  the  country,  and  its  intimate 
connection  with  the   railway  transportation  system,  calls 


4  PUBLIC  REGULATION  OF  RAILWAYS. 

for  some  discussion  of  the  relations  between  carriers  by 
express  and  ordinary  carriers  by  rail,  in  the  discharge  of 
their  public  functions.  Accordingly  a  chapter  will  be 
devoted  to  that  subject. 

W.  D.  Dabney. 

Charlottesville,  Va. 
July,  1889. 


THE  LEGAL  ASPECTS  OF  THE 
QUESTION. 


CHAPTER  I. 

Sources  of  Legislative  Power —  The  Railroad  a  Public  Highway 
— E7nineiit  Domain  and  Taxation  in  Aid  of  its  Construction 
—  General  Co7)ipetition  over  Railroads  —  Intercha7ige  of 
Traffic — Public  Character  of  Uses  to  which  Railroad  Prop- 
erty is  Dedicated  —  Mode  of  Use  atid  Price  of  Use  Matters 
of  Legislative  Regulation,  unless  Restricted  by  Charter  Con- 
tracts— Delegatio?i  of  Power. 

It  has  been  said  concerning  the  construction  of  the 
political  constitution  of  the  country,  that  nothing  is  so 
important  as  a  frequent  recurrence  to  first  principles.  The 
same  remark  is  applicable  to  a  correct  understanding  of 
the  relations  of  the  railway  system  to  the  public. 

There  can  be  no  doubt  that  the  system  as  it  has  devel- 
oped, and  as  it  it  is  now  operated,  has  drifted  far  away 
from  the  principles  on  which  it  derived  its  existence,  and 
to  understand  fully  the  right  and  the  extent  of  public 
control  over  the  system,  an  examination  of  those  princi- 
ples is  necessary.  The  notion  upon  which  railroads  came 
into  being,  and   upon   which   many  early  charters  were 

5 


6  PUBLIC  REGULATION  OF  RAILWAYS. 

drawn,  was  that  any  and  all  persons  might  have  the  use 
of  the  road,  for  the  transit  of  their  own  vehicles  by  their 
own  motive  power,  upon  the  payment  of  reasonable 
"  tolls  "  to  the  owners  of  the  road.  The  common  use  of 
this  word  "  tolls  "  in  respect  to  railroad  charges  indicates 
the  prevalent  idea  entertained  as  to  the  character  of  which 
railroad  transportation  would  partake — namely,  that  of  the 
turnpike.  And  the  word  is  still  in  frequent  use,  though 
as  a  general  thing  its  original  signification  no  longer 
applies  in  this  connection. 

The  modern  function  of  the  railroad  company  as  the 
exclusive  carrier  upon  its  own  road  has  become  so  familiar, 
that  it  is  somewhat  difficult  to  realize  fully  the  original 
conception  of  its  function,  as  a  highway  upon  which 
numerous  carriers  might  compete  for  business. 

But  there  is  no  necessary  connection  between  the  two 
functions  of  furnishing  the  road,  and  carrying  upon  it. 
Much  less  is  there  any  legal  reason  why  the  railroad  com- 
pany should  be  the  exclusive  carrier  over  its  road.  Its 
right  to  carry  at  all,  and  more  especially  its  exclusive 
right,  depends  upon  the  terms  of  its  charter.  This  his- 
torical view,  with  the  legal  relations  resulting  from  it,  are 
clearly  recognized  in  the  jurisprudence  of  the  subject. 
The  Supreme  Court  of  the  United  States  has  examined 
the  question  in  this  light,'  and  the  fair  inference  from  the 
remarks  of  the  Court  is,  that  in  the  absence  of  provision  to 
the  contrary,  the  railway  is,  theoretically  at  least,  a  public 
'  L.,  S.,  &  M.  Railroaci  Co.  vs.  United  States.     93  U.  S.,  p.  442. 


RAILROADS  AS  PUBLIC  HIGHWAYS.  J 

highway,  and  as  such  open  for  the  transit  of  the  vehicles 
of  all  persons,  upon  payment  of  reasonable  tolls,  and  sub- 
ject to  reasonable  regulations. 

It  is  undoubtedly  true  that  "  in  practice,  as  a  general 
thing,  railroads  are  only  operated  by  companies  that  own 
them,  or  by  those  with  whom  they  have  permanent 
arrangements  for  the  purpose.  The  companies  have  a 
practical  if  not  a  legal  monopoly  of  their  use."  But  "the 
ascertained  impracticability  of  the  general  and  indiscrimi- 
nate use  of  these  great  thoroughfares,  does  not  preclude 
their  use  by  transportation  companies  having  no  interest 
in  the  roads  themselves."  The  general  course  of  legisla- 
tion "  sufficiently  demonstrates  the  fact,  that  in  the  early 
history  of  railroads  it  was  quite  generally  supposed  that 
they  could  be  public  highways  in  fact,  as  well  as  in  name." 

And  "  this  fact  affords  the  only  explanation  of  much  of 
the  language  used,  not  only  in  those  early  charters,  but  in 
many  of  those  which  have  been  granted  since,  the  latter 
adopting,  as  was  natural,  the  forms  of  phraseology  found 
prepared  to  hand."  It  has  also  been  judicially  declared,' 
that  the  exercise  of  the  right  of  eminent  domain,  in  the 
construction  of  railroads,  and  the  levy  of  taxes  to  raise 
subsidies  in  their  aid,  are  justified  only  by  the  fact  that 
railroads  are  public  highways.  "  That  railroads  though 
constructed  by  private  corporations  and  owned  by  them 
are  public  highways,  has  been  the  doctrine  of  nearly  all  the 
courts  ever  since  such  conveniences  for  passage  and  trans- 

•        '  Olcott  vs.  The  Supervisors,  i6  Wall,  67S. 


8  PUBLIC  REGULATION   OF  RAILWAYS. 

portation  have  had  any  existence."  "  It  has  never  been 
considered  a  matter  of  any  importance  that  the  road  was 
built  by  the  agency  of  a  private  corporation.  No  matter 
who  is  the  agent,  the  function  performed  is  that  of  the 
State.  Though  the  ownership  is  private  the  use  is 
pubHc."  "  It  is  said  that  railroads  are  not  public  highways 
per  se  ;  that  they  are  only  declared  such  by  the  decisions 
of  the  courts."  "This  is  a  mistake;  in  their  very  nature 
they  are  public  highways.  It  needed  no  decision  of  the 
courts  to  make  them  suc^."  "  As  well  might  it  be  said  a 
turnpike  is  a  highway  only  because  declared  such  by 
judicial  decision."  "  That  all  persons  may  not  put  their 
own  cars  upon  the  road,  and  use  their  own  motive  power, 
has  no  bearing  upon  the  question  whether  the  road  is  a 
public  highway.  It  bears  only  upon  the  mode  of  use,  of 
which  the  legislature  is  the  exclusive  judge." 

This  assertion  of  the  power  of  the  legislature  over  the 
mode  of  use  of  railways,  that  is,  whether  the  right  of 
transportation  over  a  railroad  shall  be  exclusively  in  the 
company  which  owns  it,  or  whether  it  shall  be  open  to  all 
comers,  upon  payment  of  tolls  (and  under  proper  regula- 
tions), is  one,  as  will  subsequently  appear,  of  great  practi- 
cal importance.  The  unrestricted  application  to  the 
present  railroad  system,  of  the  original  idea  of  free  com- 
petition, would  no  doubt  present  very  grave  difficulties 
and  physical  danger  in  the  operation  of  railways ;  and 
would,  moreover,  as  will  be  shown  in  another  connection, 
paralyze  the  transportation  business  as  applied  to  many 


LEGISLATIVE   POWER. 

of  the  most  necessary  articles  of  commerce  and  of  civilized 
existence.  But  for  these  difficulties,  the  application  upon 
any  railroad  line  of  the  theory  of  free  competition, 
might,  in  some  branches  of  trade  and  transportation,  be 
highly  beneficial,  and  might  result  in  a  partial  solution, 
at  least,  of  many  of  the  most  perplexing  problems  of 
railroad  transportation.  However  unwise  might  be  the 
exercise  of  the  power  to  open  railways  to  general  compe- 
tition, it  can  hardly  be  doubted  that,  in  the  absence  of 
contract  restrictions,  the  legislature  possesses  that  power, 
— taking  care,  of  course,  to  secure  to  the  owners  of  the 
roads  reasonable  compensation  for  their  use.  The  ques- 
tion of  legislative  power  thus  broadly  suggested  is  hardly 
a  practical  one,  but  it  may  become  of  great  importance 
when  sought  to  be  applied  to  compel  railway  companies 
to  permit  the  unrestricted  "  interchange  of  traffic  "  over 
their  respective  roads,  which  may  frequently  be  of  conse- 
quence to  the  public  welfare.  Many  modern  charters 
and  the  general  railroad  laws  of  some  States  provide, 
however,  that  "  the  company  shall  have  the  exclusive 
right  of  transportation  over  its  own  road."  This  language 
was  doubtless  used  to  exclude  the  well  settled  idea — 
drawn  from  the  analogy  of  the  public  road  or  turnpike — 
that  the  ownership  of  the  railroad  would  be  vested  in  one 
set  of  persons,  and  the  vehicles  of  transportation  upon  it 
— the  cars  or  "  carriages  " — would  belong  to  others.  The 
language  probably  amounts  to  a  contract  between  the 
public  and  the  railroad  company,  conferring  an  exclusive 


10  PUBLIC  REGULATION  OF  RAILWAYS. 

privilege,  which  would  not  otherwise  belong  to  the  latter, 
and  of  which  (if  the  legislature  can  validly  make  such  a 
contract)  the  company  cannot  be  deprived  by  future 
legislative  act,  unless  the  right  to  amend,  alter,  and  repeal 
charters  has  been  reserved. 

The  word  "  transportation "  suggests  two  things, 
namely,  motive  power,  and  vehicles  for  carriage.  The 
language  that  "  the  company  shall  have  the  exclusive 
right  of  transportation  over  its  road,"  therefore  conveys 
the  idea  that  its  own  motive  power  and  its  own  vehicles 
shall  both,  exclusively  of  all  others,  be  used.  And  to 
compel  the  company  to  haul  the  vehicles  of  others,  with 
its  own  motive  power,  would  be  as  much  an  infringement 
of  the  right  that  language  confers,  as  to  compel  it  to  allow 
others  to  have  the  use  of  its  track  for  their  engines  and 
cars. 

It  has  been  questioned  by  some  writers,'  whether  a 
legislature  can  confer,  by  contract  with  a  railroad  com- 
pany, an  exclusive  right  to  the  use  of  its  road.  This,  it 
is  said,  has  the  appearance  of  a  perversion  of  the  road  to 
the  private  use  of  its  owners ;  and  the  power  of  eminent 
domain,  as  has  been  seen,  can  only  be  conferred  by  the 
legislature  for  a  public  use.  So  that  to  grant  to  a  railroad 
company  the  prerogative  right  of  eminent  domain,  and 
then  grant  the  right  to  use  it  for  private,  in  subordination 
to  public  ends,  would  be  to  endow  the  company  with 
inconsistent  privileges,  one  or  the  other  of  which  must  be 
'  See  "  The  Railways  and  the  Republic,"  by  J,  F,  Hudson. 


INTERCHANGE   OF   TRAFFIC.  II 

void.  If  the  former  be  void,  the  company  has  no  title 
to  its  road,  if  the  latter  be  void,  the  public  right  of  use 
has  not  been  impaired  by  the  legislation.  Such  is  the 
argument  against  the  legislative  power  to  confer  the 
exclusive  right  of  transportation  over  a  railroad,  upon  a 
single  corporation.  It  assumes  that  the  exclusive  use  is 
necessarily  the  perversion  of  the  road  from  public  to 
private  objects.  But  if  the  public  object  be — as  it  un- 
doubtedly is — the  general  good  of  the  whole  community, 
this  assumption  is  erroneous.  That  object,  it  is  believed, 
has  been  best  secured,  and  will  be  best  maintained,  by 
giving  to  every  company  the  exclusive  right  of  carrying 
over  its  own  line,  subject  to  the  duty  of  such  free  inter- 
change of  traffic  with  connecting  roads  as  the  public 
good  may  require.  And  this  "  is  a  matter  of  which  the 
legislature  is  the  exclusive  judge." 

This  question  becomes  a  practical  one,  when  one  rail- 
road_company  seeks  to  secure  with  a  connecting  road  an 
arrangement  for  mutual  interchange  of  traffic,  which  the 
latter  refuses  to  enter  into.  Such  an  arrangement  would 
involve  the  free  and  unrestricted  passage  of  the  cars  of 
one  company  over  the  roads  of  the  other — subject,  of 
course,  to  reasonable  inspection  and  regulations,  for  safety 
and  convenience. 

These  arrangements — now  almost  universal  among  rail- 
road companies — do  not  involve  the  payment  of  tolls  by 
one  company  to  the  other,  for  the  use  of  its  track.  Each 
road   furnishes  its  own  motive  power,  and  its  own  train 


12  PUBLIC  REGULATION  OF  RAILWAYS. 

men.  It  charges  for  the  services  both  of  furnishing  the 
road  and  of  carrying  upon  it,  and  it  pays  the  connecting 
road,  in  whose  cars  the  traffic  is  received  and  carried,  a 
fixed  sum  per  mile  for  the  use  of  its  cars.  This  arrange- 
ment shows  how  completely  the  idea  of  "  tolls  "  (in  the 
original  signification  of  the  word)  is  eliminated  from 
modern  railroad  practice.  Still  the  right  to  have  the 
vehicles  of  one  company  pass  over  the  road  of  another  is 
necessarily  involved,  and  raises  the  question  of  legislative 
power  to  declare  and  enforce  such  a  right. 

In  the  actual  exigencies  of  business,  however,  the 
question  is  presented,  not  alone,  but  in  association  with 
others.  These  other  questions  are  as  to  issuing  joint 
through  bills  of  lading,  and  through  tickets  over  connect- 
ing roads,  so  that  both  may  be  used  by  the  public  as  a 
continuous  and  uninterrupted  means  of  communication  ; 
joint  use  of  terminal  facilities  at  points  of  junction  ;  the 
proportion  of  the  joint  through  rate  over  the  connecting 
roads,  that  each  one  shall  receive  ;  the  price  to  be  paid  by 
each  for  the  use  of  the  other's  cars  ;  and  in  general  all 
the  arrangements  necessary  and  proper  for  the  "  through  " 
carriage  of  passengers  and  freight  over  connecting  lines. 

Upon  the  subject  of  the  rights  and  interest  of  the  pub- 
lic in  railway  connections,  and  in  the  free  interchange  of 
traffic  between  connecting  or  intersecting  lines,  a  quota- 
tion is  here  inserted  from  Col.  T.  H.  Carter,  once  railroad 
commissioner  of  Virginia,  and  now  chief  commissioner  of 
the  Southern  Railway  and  Steamship  Association.     "  It 


SPECIAL  LEGISLATION  REQUIRED.  13 

is,"  said  he,  "  surely  incumbent  on  the  connecting  lines 
under  the  law,  and  under  every  consideration  of  equity, 
to  afford  every  facility  rather  than  to  offer  the  slightest 
obstruction  to  the  free  flow  of  trade  and  travel.  .  .  . 
They  have  no  right  to  refuse  rates  in  one  direction,  which 
they  recognize  under  similar  circumstances  in  another, 
simply  because  it  is  to  their  own  interests  to  do  so.  They 
have  no  right  to  refuse  full  and  free  access  to  and  from 
other  roads,  simply  because  by  so  controlling  the  current 
of  trade  and  travel,  they  secure  to  themselves  perforce,  a 
larger  proportion  of  it.  They  have  no  right  either  to  re- 
fuse to  connect  with  other  roads,  or  to  so  regulate  their 
connections,  as  to  break  in  upon  the  continuity,  simply 
because  they  are  adding  to  their  own  tolls  and  fares  by 
doing  so."  ' 

This  is,  no  doubt,  a  fair  statement  of  what  connecting 
roads  may  be  compelled  by  legislation  to  do,  in  the  ab- 
sence of  the  exclusive  right  of  transportation  conferred 
upon  the  companies  by  charter  contract.  But  special 
legislation  upon  the  subject  is  probably  necessary,  even 
where  no  exclusive  privileges  have  been  conferred. 

For  it  has  been  decided,^  that  in  the  absence  of  legisla- 
tion requiring  it,  one  railroad  company  cannot  compel  a 
connecting  road  to  enter  into  joint  through-trafific  ar- 
rangements with  it,  of  the  character  above  described. 
And   this    is   so,   even  though   the   latter  road  has  such 

'  Va.  R.  R.  Comm.  Report  for  i878^j)^_ii. 

«A.,  T.,  &  S.  R.  R.  Co.  vs,  D.  &  N.  O.  R.  R.  Co.,  no  U.  S.,  667. 


14  PUBLIC  REGULATION  OF  RAILWAYS. 

arrangements,  by  contract,  with  a  rival  and  competitor 
of  the  former.  In  the  case  where  this  question  was  de- 
cided, the  rights  of  the  parties  were  governed  by  the  gen- 
eral common  law  of  the  country,  and  by  certain  constitu- 
tional provisions  of  the  State  of  Colorado.  One  of  these 
provisions  was  that :  "  All  individuals,  associations,  and 
corporations  shall  have  equal  rights  to  have  persons  and 
property  transported  over  any  railroads  in  this  State,  and 
no  undue  or  unreasonable  discrimination  shall  be  made  in 
charges  or  facilities  for  transportation  of  freight  or  pas- 
sengers within  the  State,  and  no  railroad  company,  or  any 
lessee,  manager,  or  employ^  thereof,  shall  give  any  pref- 
erence to  individuals,  associations,  or  corporations,  in 
furnishing  cars  or  motive  power."  Another  provision 
was  that :  "  Every  railroad  company  shall  have  a  right 
with  its  road  to  intersect,  connect  with,  or  cross  any  other 
railroad." 

Of  the  first  constitutional  provision,  the  Court  said  that 
it  was  merely  declaratory  of  the  common  law.  Of  the 
second  it  was  said  that  it  referred  only  to  a  physical  con- 
nection of  the  tracks  of  the  railroads,  and  not  to  a  busi- 
ness connection  between  the  companies.  "  A  railroad  is 
prohibited  both  by  the  common  law  and  by  the  constitu- 
tion of  Colorado  from  discriminating  unreasonably  in 
favor  of  or  against  another  company  seeking  to  do  busi- 
ness on  its  road,  but  that  does  not  necessarily  imply  that 
it  must  stop  at  the  junction  of  one  road  and  interchange 
business  there,  because   it  has  provided  joint  depot  ac- 


PROPER   SUBJECTS  FOR  LEGISLATION.  1 5 

commodations,  and  provided  facilities  for  doing  a  con- 
necting business  with  another  company  at  another  place." 
And  "  the  right  to  do  a  through  business  does  not  neces- 
sarily follow  from  a  connection  of  tracks.  The  connec- 
tion may  enable  the  companies  to  do  such  a  business 
conveniently,  when  it  is  established,  but  it  does  not  of 
itself  establish  the  business."  But  it  was  distinctly  declared 
that  "  such  matters  are  and  always  have  been  proper  subjects 
for  legislative  consideration,  unless  prevented  by  some  char- 
ter contract^  And  "  whether  a  connecting  business  shall 
be  done  over  the  roads,  after  the  union  [of  the  tracks]  is 
made,  depends  on  legislative  regulation,  or  contract  obliga- 
tion." It  is  true  that  the  remarks  of  the  Court  in  this 
case,  concerning  the  powers  of  the  legislature  were  not 
strictly  necessary  for  the  decision,  yet  they  appear  to 
express  the  deliberate  judgment  and  opinion  of  the 
judges.  Reference  was  made  to  the  English  "  Railway 
and  Canal  Traffic  Act,"  which  enjoins  upon  such  carriers 
the  duty  of  interchange  of  trafific  among  themselves 
without  discrimination  or  preference,  and  of  that  it  was 
said  :  "  If  complaint  was  made  of  a  violation  of  this  pro- 
vision, application  could  be  made  to  the  courts  for  relief. 
Were  there  such  a  statute  in  Colorado,  this  case  would 
come  before  us  in  a  different  aspect." 

Reference  was  also  made  to  a  constitutional  provision 
of  Pennsylvania,  which  is  as  follows  :  "  Every  railroad 
company  shall  have  the  right  with  its  road  to  intersect, 
connect  with,  or  cross  any  other  railroad  ;  and  shall  receive 


l6  PUBLIC  REGULATION  OF  RAILWAYS. 

and  transport  each  the  other's  passengers,  tonnage,  and 
cars,  loaded  or  empty,  without  delay  or  discrimination." 

The  Court,  by  manifest  implication,  gave  its  sanction  to 
this  constitutional  provision,  which  was  cited  to  show  the 
difference  between  language  which  would  establish  a 
business  connection  between  connecting  companies,  and 
that  of  the  Colorado  constitution,  which  was  held  to 
authorize  a  physical  connection  merely.  A  constitutional 
requirement  of  a  State  having  the  effect  to  impair  an 
existing  contract  right,  would  be  quite  as  vain  as  an 
ordinary  legislative  act  having  the  same  object  in  view. 
And  in  the  absence  of  any  contract  right  to  the  contrary, 
there  is  no  reason  why  an  act  of  the  legislature  may  not 
impose  upon  railroad  companies  already  created,  and 
whose  works  are  in  operation,  as  well  as  upon  such  as 
are  afterwards  to  be  created,  the  duty  of  a  free  inter- 
change of  traffic  and  transportation  of  each  other's  cars. 
The  terms  upon  which  connecting  roads  shall  interchange 
traffic  in  this  way  involve  inquiries  which  are  judicial  in 
their  nature,  and  if  the  companies  cannot  agree  among 
themselves,  they  should  be  referred  to  judicial  determina- 
tion. And  there  are  some  important  details  necessary  for 
the  most  convenient  interchange,  which,  depending  as 
they  do  upon  contracts  entirely,  perhaps  cannot  be  re- 
quired by  legislation  or  enforced  by  courts.  It  clearly 
appears,  however,  that  in  the  absence  of  charter  contract- 
rights  to  the  contrary,  railway  companies  may  be  com- 
pelled by  legislation  to  carry  along  their  lines  the  cars  of 


REASONABLE   COMPENSATION,  1 7 

connecting  roads  without  breaking  bulk,  or  transferring 
the  contents  from  the  vehicles  of  one  company  to  those 
of  another  ;  or,  in  other  words,  to  interchange  traf^c.  It 
is  in  fact  the  opinion  of  some  State  courts  of  high  author- 
ity, that  the  duty  of  drawing  the  cars  of  connecting  roads 
exists  independently  of  statute,'  and  this  opinion  certainly 
conforms  logically  to  the  original  theory  of  the  railway, 
which  never  contemplated  an  exclusive  right  to  the  use 
of  the  track.  And^it  seejns  to  be  a  fair  inference  that 
this  power  of  the  Legislature,  unless  limited  by  contract, 
may  be  applied  to  compel  railroad  companies  to  carry 
over  their  lines  the  vehicles  and  cars,  not  only  of  other  rail- 
roads, but  of  express  companies,  or  any  other  persons." 
In  practice  cars  belonging  to  private  persons  are  often  car- 
ried. All  these  legislative  powers  over  the  mode  of  use  of 
railways — that  is,  whether  the  same  shall  be  wholly  or 
partially  exclusive,  or  whether  the  use  of  the  track  shall 
be  open  to  all  comers  on  the  same  terms — are  referrible 
to  the  principle  of  the  "public  highway."  Unless  the 
exercise  of  these  powers  has  been  limited  by  the  express 
terms  of  a  binding  charter-contract,  they  may  be  applied 
by  the  legislature  as  may  be  deemed  most  conducive  to 
the  public  good.  Due  provision,  of  course,  should  always 
be  made  to  secure  to  the  owners  of  the  road  a  reasonable 
compensation  for  its  use,  whatever  the  particular  "  mode 
of  use  "  may  be. 

'  See  "  Redfield  Railways,"  vol.  ii.,  p.  16  n.  (a),  and  "  Harper's  Law  of 
Interstate  Commerce,"  p.  151,  for  authorities. 
'  See  Express  Cases,  117  U.  S.,  on  pp.  28,  29. 


1 8  PUBLIC  REGULATION  OF  RAILWAYS, 

But  the  right  of  public  regulation  of  the  business,  and 
the  charges  of  railroad  companies,  is  derived  not  alone 
from  the  fact  that  railroads  are  in  their  nature  public 
highways,  and  that  the  companies  owe  their  existence  to 
an  exercise  of  legislative  will,  as  evidenced  in  their  char- 
ters of  incorporation  ;  but  also  from  the  public  character 
of  the  uses  to  which  their  property  is  devoted.  This 
principle  was  laid  down  and  established  as  the  basis  and 
rationale  of  legislative  authority  in  the  celebrated  Granger 
cases/  The  leading  one  of  these  cases,  viz.,  Munn  vs. 
Illinois,  did  not  involve  any  question  of  authority  over 
the  rates  or  the  transactions  of  railways  or  other  chartered 
companies,  nor  had  the  power  of  eminent  domain  been 
granted  or  exercised  in  aid  of  the  business  which  was 
regulated.  But  the  power  of  a  State  legislature  was 
affirme'd  and  established,  to  fix  maximum  rates  for  the 
storage  of  grain  in  warehouses,  which  had  been  built  by 
private  citizens  on  their  own  land,  and  had,  theretofore, 
been  controlled  by  the  owners  at  their  will,  in  respect  to 
the  charges  and  the  regulations  for  their  use.  A  very 
strong  and  logical  argument  against  the  legislation  re- 
ferred to  is  contained  in  the  dissenting  opinion  of  Justice 
Field"  with  whom  Justice  Strong  concurred.  He  main- 
tained that  legislative  power  to  control  the  price  of  the 
use  of  property  is  substantially  the  power  to  deprive  the 
owner  of  his  property  without  due  process  of  law,  which 
is  forbidden  to  the  States  by  the  14th  Amendment  to  the 
Constitution  of  the  United  States. 

'  Reported  in  94  U.  S.,  from  p.  113  to  187. 


LIMITATION  OF  POWER.  1 9 

The  majority  of  the  Court,  however,  speaking  through 
Chief-Justice  Waite,  said,  "that  down  to  the  time  of  the 
adoption  of  the  14th  Amendment,  it  was  not  supposed 
that  statutes  regulating  the  use,  or  even  the  price  of  the 
use,  of  private  property  necessarily  deprived  an  owner  of 
his  property,  without  due  process  of  law.  Under  some 
circumstances  they  may,  but  not  under  all. 

"The  amendment  does  not  change  the  law  in  this  par- 
ticular ;  it  simply  prevents  the  States  from  doing  that 
which  will  operate  as  such  a  deprivation.  .  .  .  When 
private  property  is  affected  with  a  public  interest,  it  ceases 
to  be  juris  privati  only.  .  .  .  Property  does  become 
clothed  with  a  public  interest  when  used  in  a  manner  to 
make  it  of  public  consequence,  and  affect  the  community 
at  large.  When,  therefore,  one  devotes  his  property  to 
a  use  in  which  the  public  has  an  interest,  he  in  effect 
grants  to  the  public  an  interest  in  that  use,  and  must  sub- 
mit to  be  controlled  by  the  public  to  the  extent  of  the  in- 
terest he  has  thus  created."  Referring  then  to  the  circum- 
stances surrounding  the  business  of  the  warehouses  and 
grain  elevators  of  Chicago,  it  was  said  :  "  Certainly  if  any 
business  can  be  clothed  with  a  public  interest,  and  cease  to 
hejuris privati  only,  this  has  been.  It  may  not  be  made  so  by 
the  operation  of  the  constitution  of  Illinois,  or  by  this  stat- 
ute, but  it  is  by  the  facts.  It  presents,  therefore,  a  case  for 
the  application  of  a  long-known  and  well  established  prin- 
ciple of  social  science,  and  this  statute  simply  extends  the 
law  to  meet  this  new  development  of  commercial  progress." 


iO  PUBLIC  REGULATION   OF  RAILWAYS. 

It  had  been  insisted  in  the  argument  of  the  case  that 
the  owner  of  property  is  entitled  to  a  reasonable  compen- 
sation for  its  use,  even  though  it  be  clothed  with  a  public 
interest,  and  that  what  is  reasonable  is  a  judicial  and  not 
a  legislative  question.  To  this  argument  the  Court  re- 
plied :  "  In  countries  where  the  common  law  prevails,  it 
has  been  customary,  from  time  immemorial,  for  the  legis- 
lature to  declare  what  shall  be  a  reasonable  compensation 
under  such  circumstances,  or  perhaps,  more  properly 
speaking,  to  fix  a  maximum,  beyond  which  any  charge 
made  would  be  unreasonable.  Undoubtedly,  in  mere 
private  contracts,  in  which  the  public  has  no  interest, 
what  is  reasonable  must  be  ascertained  judicially.  But 
this  is  because  the  legislature  has  no  control  over  such  a 
contract." 

It  is  apparent,  from  the  reasoning  of  the  decision  in  this 
case,  that  the  right  of  public  control  over  the  price  of  ser- 
vices is  based  not  upon  any  special  privilege  or  franchise 
granted  to  the  party  rendering  them,  nor  upon  the  right 
of  the  public  to  have  the  benefit  of  such  services  ;  for  it 
is  distinctly  declared  that  the  person  exercising  the  em- 
ployment may  at  any  time  discontinue  it. 

But  it  is,  as  Justice  Field  remarked,  "  clear  that  the 
Court  intended  to  declare,  that  whenever  one  devotes  his 
property  to  a  business  which  is  useful  to  the  public — 
'  affects  the  community  at  large,' — the  legislature  can 
regulate  the  compensation  which  the  owner  may  receive 
for  its  use,  and  for  his  own  services  in  connection  with  it." 


THE   PUBLIC  lA'TKRESr.  21 

The  extent  of  the  business  then,  and  the  number  of  peo- 
ple to  whom  it  is  useful,  together  with  its  character  of 
a  practical  monopoly,  constitute  the  criterion  of  the  right 
of  public  control,  and  this  being  the  case,  the  question 
would  seem  to  be  largely  one  of  fact,  and  sometimes  most 
difficult  of  correct  decision.' 

As  said  by  Judge  Cooley,  commenting  on  the  case  of 
Munn  vs.  Illinois,  in  his  work  on  "  Constitutional  Limita- 
tions ^  "  :  "  What  circumstances  shall  affect  property  with  a 
public  interest  is  not  very  clear.  The  mere  fact  that  the 
public  have  an  interest  in  the  existence  of  the  business 
and  are  accommodated  by  it  cannot  be  sufificient,  for  that 
would  subject  the  stock  of  the  merchant  and  his  charges  to 
public  regulation.  The  public  have  an  interest  in  every  busi- 
ness in  which  an  individual  offers  his  wares,  his  merchan- 
dise, his  services  or  his  accommodations  to  the  public  ; 
but  his  offer  does  not  place  him  at  the  mercy  of  the  pub- 
lic in  respect  to  charges  and  prices.  If  one  is  permitted 
to  take  upon  himself  a  public  employment,  with  special 
privileges  which  only  the  State  can  confer  upon  him,  the 
case  is  clear  enough  ;  and  it  seems  to  have  been  the  view 
of  both  courts  in  this  case  that  the  circumstances  were 
such  as  to  give  the  warehousemen  in  Chicago,  who  were 
the  only  persons  affected  by  the  legislation,  a  '  virtual ' 
monopoly  of  the  business  of  receiving  and  forwarding  the 
grain  of  the  country  to  and  from  that   important  point, 

'  See  some  suggestions  on  this  subject  in  testimony  taken  by  Senate  Com- 
mittee on  Labor  and  Capital,  vol.  ii.,  p.  1300. 

*Cooley's  "Constitutional  Limitations,"  p.  737,  5lh  edition. 


22  PUBLIC  REGULATION  OF  RAILWAYS. 

and  by  the  very  fact  of  monopoly  to  give  their  business  a 
public  character,  affect  the  property  in  it  with  a  public 
interest,  and  make  regulation  of  charges  indispensable." 

No  difificulties  from  this  source  arise,  however,  in  the 
application  of  the  doctrine  to  the  rates  of  railway  trans- 
portation, or  to  the  general  management  and  operation  of 
railroads,  as  there  can  be  no  question  of  the  general  and 
pervasive  interest  the  whole  public  has  in  their  use  ;  and 
an  additional  basis  of  the  right  of  public  control  in  these 
cases  is  found  in  the  fact  that  the  railroad  companies 
exercise  their  functions  and  derive  their  rights  and  their 
very  existence  from  the  public  grants  contained  in  their 
charters,  including  the  high  prerogative  franchise  of  emi- 
nent domain. 

Thus  being  the  creatures  of  legislative  power  they  are, 
in  the  popular  phrase,  subject  at  all  times  to  the  regula- 
tion and  control  of  their  creator.  Or,  as  said  by  the  Su- 
preme Court  of  the  United  States  ' :  "  Railroads  are  car- 
riers for  hire.  They  are  incorporated  as  such,  and  given 
extraordinary  powers  in  order  that  they  may  the  better 
serve  the  public  in  that  capacity.  They  are,  therefore, 
engaged  in  a  public  employment  affecting  the  public  in- 
terests, and  under  the  decision  in  Munn  vs.  Illinois,  subject 
to  legislative  control  as  to  their  rates  of  fare  and  freight  un- 
less protected  by  their  charters."  And  not  only  may  the 
State  legislature  itself  fix  maximum  rates  upon  railroads, 
and  otherwise  regulate  the'ir  charges,  but  it  may  delegate  its 
'  C,  B.,  &  Q.  R.  R.  Co.  vs.  Iowa,  94  U.  S.,  p.   155. 


POWER   OF  THE   COMMISSION.  23 

powers  for  that  purpose  and  for  many  others.  For  example, 
in  1884,  the  legislature  of  Mississippi  passed  "an  act  to 
provide  for  the  regulation  of  freight  and  passenger  rates 
on  railroads  in  the  State,  and  to  create  a  commission  to 
supervise  the  same,  and  for  other  purposes."  The  rail- 
road companies  of  the  State  were  required  to  furnish  this 
commission  with  their  tariffs  of  charges  of  every  kind. 
And  it  was  made  the  duty  of  the  commission  "  to  revise 
said  tariff  of  charges  so  furnished,  and  determine  whether 
or  not,  and  in  what  particular,  if  any,  said  charges  are 
more  than  just  compensation  for  the  services  to  be  ren- 
dered, and  whether  or  not  unjust  discrimination  is  made 
in  such  tariff  of  charges  against  any  person,  locality,  or 
corporation.  .  .  .  but  in  revising  any  and  every  tariff 
of  charges,  it  shall  be  the  duty  of  said  commission  to 
take  into  consideration  the  character  and  nature  of  the 
services  to  be  performed,  and  the  entire  business  of  such 
railroad,  together  with  its  earnings  from  the  passenger  and 
other  traffic,  and  so  revise  such  tariff  as  to  allow  a  fair  and 
just  return  on  the  value  of  such  railroad,  its  appurtenan- 
ces and  equipment."  And  the  commission  was  empow- 
ered to  increase  or  reduce  railroad  rates  as  experience 
and  business  operations  might  show  to  be  just,  and  to  fix 
tariffs  of  rates  for  such  railroads  as  should  refuse  to  fur- 
nish their  tariffs  as  required  by  law.  Obedience  to  the  re- 
quirements of  the  commission  was  secured  under  a  pen- 
alty, recoverable  by  action  in  the  name  of  the  State  to  be 
instituted  by  the  District  Attorney  ;  and  it  was  provided 


24  PUBLIC  REGULATION  OF  RAILWAYS. 

that  "  in  all  trials  of  cases  brought  for  a  violation  of  any 
tariff  of  charges  as  fixed  by  the  commission,  it  may  be 
shown  in  defense  that  any  tariff  so  fixed  is  unjust."  The 
legislature  thus  delegated  to  the  commission  its  own  power 
to  control  railroad  rates,  with  the  limitation  that  the  rates 
to  be  fixed  should  be  such  as  to  yield  a  fair  income  on 
the  value  of  the  company's  property,  and  that  the  justness 
of  the  rates  fixed  should  ultimately  be  determined  in  the 
regular  courts.  And  this  legislation  was  sustained  by  the 
Supreme  Court  of  the  United  States.'  An  analysis  of 
the  powers  of  the  commission,  and  of  the  duties  and  liabili- 
ties of  the  carriers  under  the  Mississippi  act,  will  show 
that  the  latter  (that  is,  the  carrier's  duties  and  liabilities) 
are  not  greatly  changed  in  respect  of  their  charges  from 
those  imposed  upon  them  by  the  common  law, — inde- 
pendent of  any  contract  right  to  control  absolutely  their 
own  charges.  By  the  common  law  a  carrier  is  bound  to 
transport  freight  and  passengers  for  a  reasonable  compen- 
sation, without  unjust  discrimination  or  favoritism. 

By  reasonable  compensation  must  be  meant  such  com- 
pensation as  will  pay  him  for  his  services  and  afford  a  fair 
return  of  profit  on  the  value  of  his  capital  invested  in  the 
business ;  and  what  is  reasonable  is  a  judicial  question  to 
be  decided  in  the  courts. 

By  the  Mississippi  act  the  commission,  it  is  true,  are 
authorized  to  fix  the  carrier's  charges,  but  they  are  lim- 
ited by  the  requirement  that  they  shall  so  fix  them  as  to 

'.Railroad  Commission  cases,  Ii6  U.  S. ,  p.  307. 


PROPERTY  RIGHTS  UNCHANGED.  2$ 

allow  the  carrier  a  fair  return  on  the  value  of  his  prop- 
erty— that  is,  the  charges  fixed  shall  be  reasonable  to  the 
carrier  as  well  as  to  the  public.  And  the  carrier  may 
always  show  to  the  court  that  the  charges  fixed  by  the 
commission  are  unjust  to  him — that  is,  the  question  of 
reasonableness  is  still  left  a  judicial  one  to  be  ulti- 
mately determined  in  the  courts.  The  principal  changes 
in  the  common  law  wrought  by  the  Mississippi  act  seem 
to  be,  first,  that  the  burden  of  any  litigation  necessary  to 
enforce  the  rights  of  the  shipper  against  the  carrier,  as 
those  rights  are  declared  by  the  commission,  is  assumed 
by  the  State  on  the  shipper's  behalf;  and,  second,  that 
the  burden  of  proof  is  shifted  from  the  shipper,  who  at  the 
common  law  would  have  to  verify  his  complaint,  to  the 
carrier,  who  under  the  statute  has  to  prove  that  the  rates 
he  is  allowed  by  the  commission  to  charge,  are  too  low  or 
unjust  to  him.  The  right  to  a  reasonable  compensation 
is  expressly  reserved  to  the  carrier,  and  the  conclusions  of 
the  commission  are  not  final,  but  may  be  reversed  in 
the  courts.  The  rights  of  the  parties  are  not  changed,  nor 
the  forum  in  which  they  are  to  be  finally  adjudicated  ;  only 
the  mode  of  ascertaining  and  enforcing  their  rights  is  al- 
tered. The  act  effects  no  change  in  the  property  rights 
of  the  railway  companies,  for  they  were  always  limited  by 
the  rule  of  reasonable  charges.  It  merely  provides  ma- 
chinery for  the  better  administration  of  the  law,  and  its 
application  to  complicated  questions. 

Besides  the  powers  of  the  legislatures  over  railroads  and 


26  PUBLIC  REGULATION'  OF  RAILWAYS. 

railroad  companies,  which  are  derived  from  the  nature  of 
the  road  itself  as  a  public  highway,  and  from  the  public 
character  of  the  uses  to  which  their  property  is  devoted, 
there  is  a  very  large  class  of  cases  where  the  authority 
of  the  public  is  referrible  to  the  "■  police  powers  "  inherent 
in  every  sovereignty.  Such  are  questions  of  convenience 
of  stations,  speed  of  trains,  safety  of  bridges,  approved 
danger-signals,  appliances  for  safety  in  car-heating,  and  in 
checking  or  controlling  trains  in  motion,  and  a  vast  num- 
ber and  variety  of  other  matters. 

These  are  scarcely  within  the  range  of  this  discussion, 
which  is  intended  to  apply  to  the  question  of  transporta- 
tion in  its  commercial  bearings. 

The  police  powers,  properly  so  called,  are  undoubtedly 
applicable  wherever  the  comfort,  convenience,  and  safety 
of  the  public  may  require  ;  and  it  is  probably  beyond 
legislative  power  to  surrender  them  by  contract. 

It  has  been  noticed  in  the  preceding  pages,  however, 
that  the  power  of  the  legislature  over  the  •'  mode  of  use  " 
of  railways  may  probably  be  surrendered  by  granting  to 
a  company  the  exclusive  right  of  transportation  over  its 
own  road.  And  the  power  over  the  "  price  of  the  use  " 
may  also  be  bargained  away  by  charter  contracts,  and  lost 
to  the  public,  so  long  as  those  contracts  remain  in  force. 


CHAPTER  11. 

Limitation  on  Legislative  Poiver  Arising  from  Charter  Contracts 
— Strictly  Construed  against  the  Corporations — N'ot  Binding 
where  Power  to  Amend,  Alter,  or  Repeal  Charters  is  Re- 
served to  the  Legislature — Examples  of  Applicatiofi  of  the 
Power  to  Amend,  Alter,  or  Repeal — Dual  Character  of 
Railroad  Propei-ty  Considered  —  Private  Ownership  Re- 
stricted to  Public  Use — Right  of  Public  Use  Paramount  to 
Private  Ownership. 

The  limitations  imposed  upon  the  right  of  public  regu- 
lation of  railways  by  the  terms  of  the  contracts  contained 
in  their  charters  (or  in  a  general  law  in  force  at  the  time) 
deserve  further  consideration  ;  for,  as  observed  by  the 
Supreme  Court  :  "  It  is  now  too  late  to  contend  that  the 
charter  of  a  corporation  is  not  a  contract  within  the 
meaning  of  that  clause  of  the  Constitution  of  the  United 
States  which  forbids  a  State  from  passing  any  law  impair- 
ing the  obligation  of  a  contract."  '  The  main  difficulties 
under  this  head  of  contract  exemption  from  legislative 
control,  consist  in  determining  what  language  or  expres- 
sions amount  to  or  constitute  a  contract  between  any  given 
railroad  company  and  the  public,  that  the  latter  will  not 
interfere  with  or  undertake  to  control  the  rates  or  opera- 

'  C,  B.,  &  Q.  R.  R.  vs.  Iowa,  94  U.  S.,  155. 
27 


28  PUBLIC  REGULATION   OF  RAILWAYS. 

tions  of  the  former.  In  the  case  last  referred  to  it  was 
decided  that  a  charter  merely  authorizing  the  company 
to  contract  in  reference  to  its  business  of  transportation 
as  a  natural  person  might  do,  and  to  establish  by-laws 
and  make  all  rules  and  regulations  deemed  expedient,  does 
not  amount  to  a  contract  against  a  legislative  reduction  of 
rates.  "This  company,"  it  was  said,  "in  the  transactions 
of  its  business,  has  the  same  rights  and  is  subject  to  the 
same  control  as  private  individuals  under  the  same  cir- 
cumstances. It  must  carry  when  called  upon  to  do  so, 
and  can  charge  only  a  reasonable  sum  for  the  carriage. 
In  the  absence  of  any  legislative  regulations  upon  the 
subject,  the  courts  must  decide  for  it,  as  they  do  for  pri- 
vate persons  when  controversies  arise,  what  is  reasonable  ; 
but  when  the  legislature  steps  in  and  prescribes  a  maxi- 
mum of  charge,  it  operates  upon  this  corporation  the  same 
as  it  does  upon  individuals  engaged  in  a  similar  business." 
In  another  case  '  it  was  held  that  a  provision  in  the 
charter  that  the  company  should  be  "  bound  to  carry 
freight  and  passengers  upon  reasonable  terms,"  added 
nothing  to  and  took  nothing  from  its  general  liability  as 
a  common  carrier,  and  did  not  at  all  afTect  the  right  of 
legislative  control  over  the  companies'  rates.  Even  where 
the  charter  expressly  confers  on  the  company  power  to 
fix  rates,  but  does  not  prescribe  any  maximum,  still  no 
contract  against  legislative  control  over  its  rates  is  created, 
and  such  control  may  be  exercised  as  freely  as  if  the 
2  R.  R.  Co.  vs.  Blake,  94  U.  S.,  p.  r8o. 


GOVERNMENT   TO  REGULATE.  29 

charter  did  not  confer  the  power.'  "  Tliis  power  of  rcgu- 
lation  is  a  power  of  government  continuing  in  its  nature, 
and  if  it  can  be  bargained  away  at  all,  it  can  only  be  done 
by  words  of  positive  grant,  or  something  which  is  equiv- 
alent in  law.  In  the  words  of  Chief-Justice  Marshall,  in 
Providence  Bank  t's.  Billings,  4  Pet.,  514,  561,  '  its  aban- 
donment ought  not  to  be  presumed  in  a  case  in  which  the 
deliberate  purpose  of  the  State  to  abandon  it  does  not 
appear.'  .  .  .  The  case  turns  consequently  on  Section 
12  [of  the  charter  of  the  company],  which  is  '  that  it  shall 
be  lawful  for  the  company  .  .  .  from  time  to  time  to  fix, 
regulate,  and  receive  the  tolls  and  charges  by  them  to  be 
received  for  transportation,'  etc.  This  would  have  been 
implied  from  the  rest  of  the  charter  had  there  been  no 
such  provision,  and  it  is  argued  that  unless  it  had  been 
intended  to  surrender  the  power  of  control  over  fares  and 
freights,  this  section  would  not  have  been  inserted.  The 
argument  concedes  that  the  power  of  the  company  under 
this  section  is  limited  by  the  rule  of  the  common  law 
which  requires  all  charges  to  be  reasonable.  .  .  .  The 
claim  now  is  that  by  Section  12  the  State  has  sur- 
rendered the  power  to  fix  a  maximum  for  this  companj', 
and  has  declared  that  the  courts  shall  be  left  to 
determine  what  is  reasonable,  free  of  all  legislative 
control.  We  see  no  evidence  of  any  such  intention. 
Power  is  granted  to  fix  reasonable  charges,  but  what 
shall  be  deemed  reasonable  in  law  is  nowhere  indicated. 


'  R.  R.  Commission  cases,  116  U.  S.,  y.  307. 


30  PUBLIC  REGULATION  OF  RAILWAYS. 

There  is  no  rate  specified  nor  any  limit  set.  Nothing 
whatever  is  said  of  the  way  in  which  the  question  of  rea- 
sonableness is  to  be  settled.  All  that  is  left  as  it  was. 
Consequently  all  the  power  which  the  State  had  in  the 
matter  before  the  charter,  it  retained  afterwards.  The 
power  to  charge,  being  coupled  with  the  condition  that 
the  charge  shall  be  reasonable,  the  State  is  left  free  to  act 
on  the  subject  of  reasonableness,  within  the  limits  of  its 
general  authority,  as  circumstances  may  require.  The 
right  to  fix  reasonable  charges  has  been  granted,  but  the 
power  of  declaring  what  shall  be  deemed  reasonable  has 
not  been  surrendered.  If  there  had  been  an  intention  of 
surrendering  this  power,  it  would  have  been  easy  to  say 
so.  Not  having  said  so,  the  conclusive  presumption  is 
there  was  no  such  intention." 

It  has  recently  been  decided  by  the  Supreme  Court  of 
the  United  States,"  that  the  fixing  of  maximum  rates 
(that  is,  providing  either  in  the  charter  or  in  a  general 
law  applicable  to  the  charter,  that  the  company  may 
charge  not  exceeding  certain  specified  rates),  does  not 
alone  amount  to  a  contract  protecting  against  future  re- 
duction of  rates,  below  the  maximum,  by  public  authority. 
"  It  would  require  much  clearer  language  than  this,"  said 
the  Court,  "  to  justify  us  in  holding  that  notwithstanding 
any  altered  conditions  of  the  country  in  the  future  the 
legislature  had,  in  1833,  contracted  that  the  company 
might,   for  all  time,   charge  rates  for  transportation   of 

1  R.  R.  Co.  vs.  Smith,  9  S.  Ct.  Reporter,  47. 


DANGEROUS  POWERS.  3 1 

persons  and  property  over  its  line  up  to  the  limits  there 
designated."  An  examination  of  the  cases  above  referred 
to  will  show  a  manifest  disposition  on  the  part  of  the 
Supreme  Court  to  take  hold  of  any  language  in  charters 
which  offers  to  sustain  an  opinion  against  a  surrender  of 
legislative  power.  This  indeed  is  a  fundamental  rule  of 
construction  of  all  statutes  in  derogation  of  public  author- 
ity,' and  the  reasoning  in  the  "  Railroad  Commission 
Cases,"  above  quoted  from,  may  seem  to  some  rather 
strained  to  the  same  end.  It  is  suggestive  that  in  no  case 
has  the  claim  to  exemption  from  legislative  control  over 
traffic  charges  been  sustained  by  the  Supreme  Federal 
Court  (though  often  asserted),  on  the  ground  of  contract 
in  railway  charters. 

But  where  the  language  permitting  charges  not  exceed- 
ing a  specified  maximum  is  followed,  as  is  frequently  the 
case,  by  a  stipulation  against  a  legislative  reduction  of 
rates  in  the  future,  it  is  difficult  to  escape  from  the  con- 
viction that  a  legislative  contract  is  created,  the  obligation 
of  which  the  courts  will   not   permit  to  be  impaired. 

It  can  readily  be  seen  that  the  grant  of  these  special 
privileges  (giving  the  exclusive  right  of  transportation  over 
the  road  and  limiting  the  charges  only  by  maximum  rates 
which  improvements  in  construction  and  management 
have  rendered  exorbitant)  confers  on  a  railroad  company 
— theoretically  at  least — very  dangerous  powers.  Ac- 
cordingly, of  late  years,  the  right  to  amend,  alter,  and 

'  See  Charles  Riv,  Brdg.  Co.  vs.  Warren  Brdg.  Co.,  11  Pet.,  544. 


32  PUBLIC  REGULATION  OF  RAILWAYS. 

repeal  charters  has  frequently  been  reserved  by  legislative 
and  constitutional  provisions.  These  confer  plenary 
powers  over  companies  subsequently  created,  but  of 
course  they  are  not  retroactive  and  do  not  affect  contracts 
contained  in  the  charters  of  existing  corporations.  Yet 
two  or  more  companies,  which  by  virtue  of  such  contracts 
enjoy  more  or  less  immunity  from  public  control,  may 
sometimes  by  an  act  of  consolidation  become  incorporated 
into  a  new  company,  and  thus  lose  their  special  privileges 
in  the  operation  of  the  same  property.  Whether  by  or 
under  an  act  of  consolidation  a  new  corporation  is  created 
out  of  the  consolidated  companies,  depends  upon  the 
legislative  intention  as  manifested  in  the  act.  Consolida- 
tion does  not  always  or  necessarily  create  a  new  company. 
On  the  contrary,  the  presumption  of  law  is  against  the 
creation  of  a  new  corporation  by  the  consolidation.'  But 
a  legislative  act  authorizing  a  consolidation  frequently 
creates  a  new  corporation,  and  endows  it,  either  directly 
or  indirectly,  with  corporate  powers.  Whether  these  cor- 
porate powers  be  the  same,  or  different  from  those  of  the 
constituent  corporations,  is  immaterial,  provided  an  en- 
tirely new  and  distinct  corporation  is  created  and  endowed 
as  such  with  powers  of  its  own.  The  consolidation  may 
not  take  place,  and  the  new  corporation  consequently  may 
not  come  into  being  until  long  after  the  date  of  the  act 
authorizing  the  consolidation  ;  and  the  powers,  privileges, 
and  immunities  of  the  new  corporation  are  determined  by 

^  Central  Railroad  Co.  vs.  Georgia,  92  U.  S. ,  665. 


MATERIAL   FACTS.  33 

the  laws  in  force  when  it  first  actually  comes  into  being. 
And  if  at  that  time  there  is  in  force  any  general  statutory 
or  constitutional  provision  against  granting  special  priv- 
ileges or  immunities  to  corporations,  or  authorizing  the 
legislature  to  amend,  alter,  or  repeal  their  charters,  under 
these  circumstances  their  special  privileges  may  at  any 
time  be  taken  from  the  new  corporations,  and  regulations 
contrary  thereto  imposed  upon  them.  And  this  is  equally 
true,  although'  by  the  act  of  consolidation  the  new  cor- 
poration may  be  expressly  endowed,  with  the  franchises, 
privileges,  and  immunities  of  its  constituent  corporations  ; 
for  it  takes  those  rights  subject  to  the  law  as  it  is  when 
they  are  given  to  it.  The  material  facts  are  the  coming 
into  being  of  a  new  corporation,  and  the  existence  at  that 
time  of  the  general  power  of  amendment,  alteration,  and 
repeal.' 

The  same  consequences  follow  where,  by  any  other 
means,  the  old  corporation  is  dissolved  and  a  new  cor- 
poration created,  and  endowed  with  the  property,  rights, 
franchises,  and  privileges  of  the  old.  Thus  it  is  sometimes 
provided  by  law  that  where  a  railroad  is  sold  under  a 
mortgage,  or  decree  of  court,  and  a  conveyance  made  to 
the  purchaser,  the  old  company  shall,  upon  the  making  of 
such  conveyance,  ipso  facto  be  dissolved,  and  the  pur- 
chaser forthwith  be  a  corporation,  entitled  to  all  the  rights, 
privileges,  and  franchises  of  the  old  corporation  and  sub- 

'  See  Railroad  Co.  vs.  Georgia,  98  U.  S.,  359.     Railroad  Co.  vs.  Berry, 

113  U.  S.,  465.     Shields  vs.  Ohio,  95  U.  S.,  319. 


34  PUBLIC  REGULATION  OF  RAILWAYS. 

ject  to  all  its  duties.  In  such  cases  by  the  very  terms  of 
the  law  a  new  corporation  is  created,  and  as  such  powers 
of  its  own  are  granted  to  it. 

"  It  can  in  no  sense  be  regarded  as  the  identical  cor- 
porate body  of  which  it  became  the  successor,  merely 
discharged  by  a  process  of  insolvency  from  a  further  lia- 
bility for  past  debts."  And  though  its  powers  and  rights 
be  identical  with  those  of  the  defunct  corporation,  and 
are  to  be  ascertained  by  reference  to  the  powers  which  it 
enjoyed,  yet  they  are  as  much  "  granted  "  by  the  legisla- 
ture to  the  new  corporation,  as  if  it  had  been  created  by 
a  special  act,  and  its  rights,  franchises,  immunities,  and 
privileges  specially  declared  therein.  It  is  therefore  sub- 
ject to  the  amending,  altering,  or  repealing  power  of  the 
legislature  in  force  at  the  time,  and  liable  to  regulative 
laws,  from  which  the  old  corporation  might  have  been 
exempt,  by  virtue  of  charter  contracts.' 

It  is  to  be  observed,  too,  that  where  a  specially  priv- 
ileged corporation  gets  control  of  other  railways,  by  lease, 
merger,  or  consolidation,  it  does  not  retain  its  special 
privileges  in  the  ownership,  operation,  and  control  of  the 
newly  acquired  property.  It  acquires  no  greater  rights 
over  or  in  respect  to  that  property  than  the  old  corpora- 
tion had.  So  far  as  its  relation  to  the  public  in  respect  to 
its  newly  acquired  property  is  concerned,  it  enjoys  the 
franchises  of  the  old  company  only.  Where  legislative 
powers  existed  over,  or  in  respect  to,  the  property  before 

1  C,  &  O.  R.  R.  Co.  vs.  Miller,  114  U,  S.,  p.  176. 


SPECIAL   PRIVILEGES.  35 

the  merger  or  consolidation,  they  exist  to  the  same  extent 
afterwards,  unless  it  is  otherwise  provided.' 

On  the  other  hand,  the  mere  consoHdation  does  not 
divest  special  privileges,  nor  enable  the  legislature  to  with- 
draw them  (where  they  were  before  irrevocable),  unless 
the  power  to  amend,  alter,  or  repeal  exists  at  the  time  of 
the  consolidation.  "  When  two  railroads  unite  or  become 
consolidated  under  the  authority  of  law,  the  presumption 
is,  until  the  contrary  appears,  that  the  united  or  consoli- 
dated company  has  all  the  powers  and  privileges,  and  is 
subject  to  all  the  restrictions  and  liabilities  of  those  out 
of  which  it  was  created."  " 

The  extent  of  legislative  power  over  railroad  compa- 
nies, under  the  reserved  right  to  amend,  alter,  or  repeal 
charters,  taken  in  connection  with  the  right  of  eminent 
domain,  seems  to  have  no  limit  save  that  imposed  upon 
the  exercise  of  the  latter  power  alone.  For  example,  in 
i862i  the  legislature  of  Massachusetts  chartered  the  Mar- 
ginal Freight  Railroad  Company  to  operate  a  street  rail- 
way in  the  city  of  Boston.  Subsequently,  in  1872, 
the  legislature  repealed  the  charter  of  the  Marginal 
Company,  and  incorporated  the  Union  Freight  Railroad 
Company,  and  authorized  the  latter  to  take  possession  of 
the  tracks  of  the  former  upon  making  compensation. 
This  was  resisted  on  the  ground  that  the  act  authorizing 
it  was  beyond  the  power  of  the  legislature,  and  repugnant 

'  Tomlinson  vs.  Branch,  15  Wall,  460. 
'  Tennessee  vs.  Whitworth,  117  U.  S. ,  139. 


36  PUBLIC  REGULATION  OF  RAILWAYS. 

to  the  Federal  Constitution.  The  Supreme  Court  said 
the  act  would  be  void  unless  made  valid  by  the  provision 
of  the  Massachusetts  statutes  called  "  the  reservation 
clause,"  concerning  acts  of  incorporation.'  This  provision 
was  that  every  act  of  incorporation  "  shall  be  subject  to 
amendment,  alteration,  or  repeal  at  the  pleasure  of  the 
legislature."  "  What  is  it  may  be  repealed  ?  "  said  the 
Court.  "  It  is  the  act  of  incorporation.  It  is  this  organic 
law  on  which  the  existence  of  the  company  depends, 
which  may  be  repealed,  so  that  it  shall  cease  to  be  a  law. 
.  .  .  All  this  maybe  done  at  the  pleasure  of  the  legis- 
lature. That  body  need  give  no  reason  for  its  action  in 
the  matter.  The  validity  of  such  action  does  not  depend 
on  the  necessity  for  it,  or  on  the  soundness  of  the  reasons 
which  prompted  it."  Property  acquired  by  a  corporation 
while  in  existence  still  belongs  to  its  stockholders  after 
the  corporation  has  ceased  to  exist,  and  its  contracts  re- 
main unimpaired  by  the  repeal  of  its  charter.  But  "  the 
property  of  corporations,  even  including  their  franchises 
when  that  is  necessary,  may  be  taken  for  public  use  under 
the  power  of  eminent  domain,  upon  making  due  compen- 
sation." And  "  it  was  therefore  in  the  power  of  the  Mas- 
sachusetts legislature  to  grant  to  another  corporation,  as  it 
did,  the  authority  to  operate  a  street  railroad  through  the 
same  streets  and  over  the  same  ground  previously  occu- 
pied by  the  Marginal  Company." 

Though  only  a  street  railway  was  involved  in  the  de- 

'  Greenwood  vs.   Freight  Co.,  105  U.  S.,  p.  13. 


SUBJECTION   OF  FRANCHISES.  37 

cision  above  quoted  from,  the  principles  apply  to  any 
chartered  railroad  company,  and  enable  the  legislature, 
under  the  reserved  power  to  repeal  charters,  to  take  away 
its  franchises,  and,  on  payment  of  just  compensation,  to 
bestow  its  property  on  others.  It  will  be  observed  that 
the  extinction  of  the  Marginal  Company,  and  the  transfer 
of  its  property  to  the  Union  Company,  were  accomplished 
by  legislation  derived  from  two  dififerent  and  distinct 
sources  of  legislative  power.  The  extinction  of  the  first 
corporation  was  effected  by  virtue  of  the  right  reserved 
by  the  legislature  to  repeal  charters  ;  while  the  transfer 
of  its  property  to  the  other  corporation  was  efTected  under 
the  prerogative  power  of  eminent  domain  inherent  in 
every  sovereignty.  The  one  may  be  exercised  without 
the  payment  of  any  compensation  to  the  corporation  or 
its  members  ;  the  other  can  only  be  exercised  upon  the 
payment  of  just  compensation  to  the  owners  of  the  prop- 
erty. It  has  been  seen,  though,  that  the  franchises  of  a 
corporation  are  as  much  subjects  of  the  power  of  eminent 
domain  as  any  other  property  ;  and  the  right  to  be  a  cor- 
poration is  itself  the  fundamental  and  primary  franchise 
of  all  these  legal  entities.  So  are  the  rights  of  corpora- 
tions as  to  their  rates,  exclusive  transportation  over  their 
roads,  and  other  matters,  merely  franchises.  They  may 
be  franchises  irrevocable  by  the  legislature,  except  in  the 
exercise  of  the  power  of  eminent  domain  ;  but  no  reason 
is  seen  why  they  are  not  as  much  subject  to  that  right  as 
any  other  franchise  or  property.  Of  course,  where  such 
franchises  are  so  taken,  their  value  must  be  paid  to  the  par- 

43109:3 


38  PUBLIC  REGULATION  OF  RAILWAYS. 

ties  deprived  of  their  use  ;  and  their  value  may  be  largely 
affected  by  their  exclusive  and  irrevocable  character. 
Still,  on  payment  of  just  compensation,  they  may  be 
taken  away.  It  does  not  follow  either  that  the  exclusive 
and  irrevocable  franchises  so  taken  from  one  corporation 
must  necessarily  be  vested  in  the  corporation  which  by 
virtue  of  the  power  of  eminent  domain  takes  the  property 
of  the  former.  The  franchises  of  the  latter  may  be  lim- 
ited or  subject  to  repeal,  while  the  exclusive  and  special 
privileges,  as  well  as  the  very  being  of  the  former,  may 
by  this  means  be  extinguished.  This  suggests  a  method 
by  which  even  the  exclusive  and  vested  contract-rights  of 
railroad  companies  may  be  constitutionally  extinguished 
by  legislative  action,  whenever  the  public  good  may  de- 
mand it,  and  their  functions  conferred  upon  others  more 
amenable  to  legislative  control. 

The  expressly  reserved  power  to  amend  or  alter  charters 
has  been  applied  by  the  Supreme  Court  of  South  Carolina, 
to  sustain  the  validity  of  a  law  which  imposed  upon  the 
railroad  companies  of  the  State  the  expenses  of  the  rail- 
road commission,  including  the  commissioners'  salaries.' 

The  right  (or  power)  of  the  State  to  impose  upon  cor- 
porations within  its  jurisdiction  the  expenses  attendant 
upon  public  regulation  of  their  business  and  operations,  is 
also  deducible  from  another  and  distinct  principle,  which 
was  clearly  laid  down  by  the  Supreme  Court  of  Ohio.^ 

The  question  arose  upon  a  statute  of  that  State  creating 

'  See  R.  R.  Co.  vs.  Gibbes.  24  S.  Car.  Repts.,  p.  60. 
'  See  Gas  Cos.  vs.  State,  18  Ohio  State  Repts..  p.  237. 


EXPENSES  OF  REGULA  TION.  39 

the  office  of  gas-inspector,  and  assessing  upon  the  gas 
companies  of  the  State  an  amount  sufficient  to  pay  the 
salary  of  the  officer  and  expenses  of  the  office. 

The  gas  companies  resisted  the  enforcement  of  the  law, 
on  the  ground  that  it  imposed  on  them  a  tax  additional 
to  that  already  imposed  upon  them  in  common  with  other 
persons  and  corporations,  which  they  contended  was  in 
contravention  of  the  State  constitution  requiring  all  taxa- 
tion to  be  equal.  The  court,  however,  construed  this 
constitutional  provision  to  refer  to  taxation  for  general 
public  purposes,  and  not  to  a  special  assessment  to  meet 
expenses  attendant  upon  public  supervision  of  the  subject 
of  the  assessment.  The  analogy  of  inspection  laws  was 
pointed  out,  where  the  dealer  whose  goods  are  inspected 
pays  the  inspector's  fee,  though  the  inspection  is  not 
solicited  by  him,  but  forced  upon  him  by  law.  The  sub- 
jects of  the  regulation  and  of  the  assessment  must,  how- 
ever, be  identical, — else  the  assessment  will  be  void. 
Upon  this  ground  a  statute  of  Kansas,  intended  to  regu- 
late express  and  railroad  companies,  but  assessing  the 
latter  alone  with  the  expenses,  was  held  invalid  by  the 
Supreme  Court  of  that  State.'  The  general  question  of 
the  power  of  the  State  to  impose  on  railway  companies 
the  expenses  of  their  regulation  has  not,  however,  been 
the  subject  of  adjudication  in  the  United  States  Supreme 
Court, — before  which  it  may  almost  certainly  be  brought, 
— and,  therefore,  cannot  be  considered  as  settled. 
'  See  32  Kansas  Reports,  p.  737, 


40  PUBLIC  REGULATION   OF  RAILWAYS. 

In  considering  the  extent  of  legislative  power  over 
railroad  transportation,  the  dual  character  of  railway 
property  must  be  constantly  and  clearly  borne  in  mind, 
to  wit,  that  oi  private  ownership,  restricted  to  public  use. 

By  public  use  is  not  necessarily  meant  that  all  persons 
shall  have  the  use  of  the  road  for  their  cars  and  motive 
power,  for  that,  as  has  been  shown,  is  a  matter  of  legisla- 
tive discretion,  in  the  absence  of  contracts  forbidding  its 
exercise.  The  use  may,  and  must,  still  be  public,  even 
though  the  legislature  has  granted  to  the  railroad  com- 
pany the  exclusive  right  of  transportation  over  its  own 
line.  And  the  public  use  is  enjoyed  under  these  circum- 
stances only  when  the  railroad  company  furnishes  equal 
facilities  to  all  alike,  and  practises  no  unjust  discrimination 
against  any  kind  of  traffic,  any  locality,  or  any  person.  If 
a  railroad  company  for  purposes  of  profit,  or  from  any 
other  motive  whatever,  declines  or  fails  to  furnish  equal 
facilities  to  all,  or  discriminates  unjustly  or  unreasonably 
against  any  kind  of  traffic,  or  any  locality,  or  any  person, 
it  thereby  perverts  the  use  of  its  railroad  from  public  to 
private  ends. 

In  doing  this  it  violates  the  fundamental  constitution 
and  object  of  its  existence.  There  can  be  no  doubt  that 
the  right  of  public  use  of  the  railroad  is  paramount  to  the 
right  of  private  property  in  it,  and  where  the  circumstances 
are  such  that  either  the  public  use,  as  above  described, 
must  be  denied,  or  the  private  profits  must  be  curtailed, 
the  latter  result  must  follow,  and  not  the  former, 


klGHTS  OF    THE  PUBLIC.  4 1 

This  doctrine  is  carried  to  the  extent  that  a  court  will 
sometimes  direct  the  operation  of  a  railroad  in  the  hands 
of  a  receiver,  under  circumstances  that  will  probably 
entail  a  loss  on  security  holders,  in  order  that  the  public 
may  have  the  benefit  of  its  use  as  a  highway  for  trade  and 
travel.  "jA.  railroad  is  authorized  to  be  constructed  more 
for  the  public  good  to  be  subserved  than  for  private  gain. 
As  a  highway  for  public  transportation,  it  is  a  matter 
of  public  concern,  and  its  construction  and  management 
belong  primarily  to  the  commonwealth,  and  are  only  put 
into  private  hands  to  subserve  the  public  convenience  and 
economy.  But  the  public  retains  rights  of  vast  conse- 
quence in  the  road  and  its  appendages,  with  which  neither 
the  company  nor  any  creditor  or  mortgagee  can  interfere. 
They  take  their  rights,  subject  to  the  rights  of  the  public, 
and  must  be  content  to  enjoy  them  in  subordination 
thereto."  '  This  is  a  necessary  consequence  of  the  public 
character  of  railroads  and  the  object  for  which  their  con- 
struction was  authorized  by  the  grant  of  their  high  and 
important  franchises.  That  object,  or  at  all  events  the 
prime  object,  was  the  general  good  of  the  whole  public. 
Upon  this  ground  alone  have  many  of  their  most  impor- 
tant rights  and  privileges  been  sustained.  This  has 
already  been  abundantly  shown.  Of  course,  the  promot- 
ers and  incorporators  of  railroad  enterprises  undertake 
them  for  their  private  gain  and  profit,  and  this  they  un- 

'  Barton  vs.   Barbour,   104  U.   S.,   p.    135.      Referred  to  approvingly  in 
Mittenberger  vs.  R.R.  Co.,  106  U.  S.,  j).  312. 


42  PUBLIC  REGULATION  OF  RAILWAYS. 

doubtedly  should  have,  if  it  can  be  made  by  the  operation 
of  their  works  consistently  with  the  public  welfare,  but 
not  otherwise.  The  State  says  to  the  incorporators : 
"  Take  the  citizen's  land  whether  he  will  or  no.  Receive 
public  donations  offered  you  by  cities  or  counties,  even 
against  the  will  of  a  large  minority  of  those  who  are  taxed 
to  raise  those  donations.  Build  your  road,  and  make  out 
of  it  what  legitimate  profit  you  can.  But  remember  I 
give  you  this  power  for  the  general  good  of  all  the  people, 
and  you  must  not  in  its  use  pervert  it  from  that  object. 
If,  confining  the  power  granted  you  to  that  object,  you 
make  great  profit,  well !  But  if  profit  fail  to  accrue  from 
such  use  of  your  franchises,  you  must  not  for  your  private 
gain  pervert  them  from  that  object,  to  the  injury  of  any 
portion  of  the  community.  This  is  the  essential  condition 
of  my  grant."  This  language  is  implied  in  every  railroad 
charter,  unless  expressly  excluded  by  the  use  of  other 
language,  clearly  conferring  other  rights.  The  incorpora- 
tors take  their  rights  subject  to  those  conditions,  and  no 
vested  rights  are  impaired  by  subsequent  legislation, 
restraining  them  to  the  legitimate  use  of  their  franchises. 
This  indeed  is  true  of  all  corporations.  Even  of  an  insur- 
ance company  it  has  been  authoritatively  declared  '  that 
its  right  "  to  exist  as  a  corporation,  and  its  authority  in  that 
capacity  to  conduct  the  particular  business  for  which  it 
was  created,  were  granted,  subject  to  the  condition  that 
the  privileges  and  franchises  conferred  upon  it  should  not  be 

^  Chicago  Life  Ins.  Co.  vs.  Needles,  113  U.  S.,  p.  580. 


LEGISLATIVE   CONTRACTS.  43 

abused,  or  so  employed  as  to  defeat  the  ends  for  which  it 
was  established,  and  when  so  abused  or  misemployed,  they 
might  be  withdrawn  or  reclaimed  by  the  State  in  such  way 
and  by  such  modcsof  procedure  as  were  consistent  with  law. 
Although  no  such  condition  is  expressed  in  the  compa- 
ny's charter,  it  is  necessarily  implied  in  every  grant  of 
corporate  existence.  ...  If  this  condition  be  not  neces- 
sarily implied,  then  the  creation  of  corporations  with  rights 
and  franchises  which  do  not  belong  to  individual  citizens 
may  become  dangerous  to  the  public  welfare,  through 
the  ignorance  or  misconduct  or  fraud  of  those  to  whose 
management  their  affairs  are  entrusted."  How  much 
more  applicable  this  language  to  a  railroad  company  in 
the  operation  of  a  "  public  highway  "  ! 

It  is  a  fundamental  principle  too,  that  where  a  legislative 
contract  granting  special  privileges  to  a  railroad  company 
exists  and  is  valid,  it  must  always  be  most  strictly  construed 
against  the  company.  The  power  of  railway  regulation  is  a 
power  of  government  continuing  in  its  nature,  and  if  there 
is  reasonable  doubt  whether  the  power  has  been  surren- 
dered, it  must  be  resolved  in  favor  of  the  existence  of  the 
power.'  A  legislative  contract  therefore  permitting  a 
railroad  company  to  charge  certain  specified  rates,  and 
binding  the  legislature  not  to  reduce  them,  does  not 
authorize  discriminations  in  charges  to  be  made  by  the 
company,  even  though  both  the  highest  and  tlie  lowest 
rates  charged  are  within  the  maximum  allowed  by  law. 

'  See  R.  R.  Commission  cases  supra. 


44  PUBLIC  REGULATION  OF  RAILWAYS. 

Legislation  against  unjust  discrimination  may  be  enacted, 
and  would  almost  certainly  be  held  valid,  notwithstand- 
ing such  contract  as  to  rates.  So  a  company  which  has 
the  exclusive  right  of  transportation  over  its  road,  may 
be  prohibited  from  unjustly  discriminating  between  con- 
necting roads,  in  giving  them  the  use  of  its  track,  hauling 
or  refusing  to  haul  their  cars,  or  in  any  particular  con- 
nected with  the  interchange  of  traffic. 

It  does  not  follow  though,  that  discriminations,  if  made, 
must  necessarily  be  unjust.  In  fact,  discrimination  in 
charges,  under  certain  circumstances,  seems  to  be  abso- 
lutely essential  to  the  public  good.  And  legislation 
against  discrimination  of  this  character,  though  valid  so 
far  as  contract  obligations  are  concerned,  may  frequently 
operate  to  deprive  a  railroad  company  of  a  portion  at  least 
of  its  net  revenues,  without  in  any  manner  benefiting  any 
of  the  communities  which  it  serves.  Under  these  circum- 
stances, such  legislation  amounts  to  an  arbitrary  taking  of 
private  property,  without  accomplishing  any  public  good, 
and  could  scarcely  receive  judicial  sanction. 


CHAPTER  III. 

Limitation  on  Legislative  Pozver  Arising  from  the  Private  Prop- 
erty Rights  of  Owners  of  Railways,  or  Railway  Securities — 
Power  to  Regulate  Raihvay  Charges,  Analogous  to  Power 
of  Eminent  Domain — Caii  only  be  Exercised  for  the  Accom- 
plishment of  Some  Public  Good,  and  must  not  Deprive 
Owners  of  Reasonable  Income  on  Just  Value  of  Property — 
Just  Value  Distinguished  from  Capitalization — Regulation 
not  Equivalent  to  Confiscation — Distinction  between  Charges 
Fixed  by  Public  Authority  for  Specific  Services,  and  the 
Entire  Schedule  of  Rates  as  a  Whole — The  Latter  Ulti- 
mately Subject  to  Judicial  Revision — The  Tilley  Case  [U. 
S.  Circuit  Court  in  Georgia)  and  Cases  from  Supreme 
Court  Compared — Recent  Iowa  Cases. 

The  Fourteenth  Amendment  to  the  Federal  Constitu- 
tion provides  that  no  State  shall  "  deprive  any  person  of 
life,  liberty,  or  property,  without  due  process  of  law,  nor 
deny  to  any  person  within  its  jurisdiction  the  equal  pro- 
tection of  the  laws." 

Of  provisions  substantially  similar  to  these,  it  has  been 
said  by  the  Supreme  Court  of  the  United  States  that  "  the 
good  sense  of  mankind  has  at  last  settled  down  to  this — 
that  they  were  intended  to  secure  the  individual  from  the 
arbitrary   exercise   of  the   powers  of   government,    unre- 

45 


46  PUBLIC  REGULATION  OF  RAILWAYS. 

strained  by  the  established  principles  of  private  rights  and 
distributive  justice."  ' 

Corporations,  or  artificial  persons  are  included  in  the 
meaning  of  the  constitution  as  well  as  individuals  or 
natural  persons.* 

The  right  of  private  property  in  railroads  though  sub- 
ordinate to  the  right  of  public  use,  is  as  clearly  entitled  to 
recognition  and  protection  within  its  limits,  as  any  other 
private  right  of  property.  The  Congress  of  the  United 
States,  and  the  legislatures  of  perhaps  all  the  States  are 
forbidden  by  constitutional  provisions  from  exercising  the 
right  of  eminent  domain — that  is,  from  taking  private 
property  for  public  use,  except  upon  making  due  compen- 
sation therefor.  The  power  of  eminent  domain  can  only 
be  exercised  where  the  property  to  be  taken  is  for  a  public 
use — that  is,  where  some  public  good  is  accomplished  or 
some  measure  of  public  benefit  promoted.  The  arbitrary 
taking  of  property  (and  the  destruction  of  revenues  there- 
from amounts  to  the  same  thing)  where  no  public  good 
can  be  subserved  thereby  seems  never  to  have  been  con- 
templated as  being  within  the  limits  of  governmental 
power,  within  the  purview  of  the  right  of  eminent  domain. 
No  constitutional  limit  was  therefore  necessary  to  be  fixed 
to  a  power  which  was  supposed  to  have  no  existence  at  all. 
And  if  it  be  true  that  no  such  power  exists,  the  taking  of 
private  property  or  the  arbitrary  curtailment  of  private 

'  Bank  of  Columbia  vs.  Okely.,  4  Wheat.,  235. 

"^  Sinking  Fund  cases,  99  U.  S.,  p.  718;  and  Santa  Clara  Co.  vs.  R.  R. 
Cos.,  118  U.  S.,  p.. I. 


EARNINGS  AND  NET  EARNINGS.  47 

revenues,  where  no  public  good  can  result  from  such 
action,  appears  to  be  beyond  legislative  authority.  The 
right  to  regulate  the  price  which  may  be  received  by  the 
owner  for  the  use  of  property  devoted  by  him  to  public 
service,  seems  to  be  analogous  to  the  right  of  eminent 
domain.  If  the  analogy  is  a  sound  one,  the  price  of  such 
use  as  fixed  by  public  regulation  must  be  a  just  compen- 
sation therefor,  and  the  regulation  can  only  be  exercised 
in  furtherance  of  the  public  interest.  Extortion  and 
unjust  discrimination  in  railway  charges  and  operations 
are  both  prejudicial  to  the  public  interest,  and  in  the  ab- 
sence of  charter  rights  to  the  contrary  they  may  undoubt- 
edly be  prohibited  by  legislation.  Leaving  out  of  view 
the  question  of  discrimination  (which  is  relative  extortion) 
the  practice  of  general  extortion  by  railway  companies 
may  be  defined  as  making  such  charges  for  services  as  in 
the  aggregate  will  swell  "  net  earnings  "  above  what  is 
necessary  to  pay  a  fair  return  on  the  just  value  of  their 
property.  The  terms  "  earnings  "  and  "  net  earnings,"  as 
applied  to  railroad  affairs,  have  been  judicially  defined.* 
The  former  includes  all  receipts  arising  from  operations  as 
a  railroad  company,  but  not  those  from  public  lands  granted 
to  the  company,  nor  fictitious  charges  for  the  transporta- 
tion of  its  own  property  and  material. 

"  Net  earnings,"  within  the  meaning  of  the  law,  are 
ascertained  by  deducting  from  the  gross  earnings  all  the 
ordinary  expenses  of  organization,  and  of  operating  the 

>  R.  R.  Co.  vs.  U.  S.,  99  U.  S.,  p.  402. 


48  PUBLIC  REGULATION  OF  RAILWAYS. 

road  and  keeping  the  property  in  good  condition  ;  but 
not  deducting  interest  paid  on  any  of  the  bonded  debt  of 
the  company.  It  is  of  the  highest  public  consequence 
that  a  sufficient  amount  of  the  gross  earnings  should  be 
applied  to  the  maintenance  of  the  roadway,  bridges,  struc- 
tures, and  equipment  generally,  in  the  highest  state  of 
eflficiency,  and  to  the  constant  improvement,  as  far  as 
practicable,  of  organization  and  management. 

In  fact  considerably  more  than  one  half  of  the  gross 
earnings  are  usually  so  applied.  The  net  earnings  of 
American  railroads  have  in  recent  years  averaged  between 
35  and  40  per  cent,  of  gross  earnings.  It  is  only  from 
these  net  earnings  that  a  fair  return  on  the  just  value  of 
the  property  can  be  derived  by  its  owners.  The  just  value 
of  railroad  property  is  by  no  means  always  or  necessarily 
its  capitalized  value — that  is,  the  face  of  the  stock  and  bonds 
issued  upon  it.  It  is  notorious  that  the  capitalization 
frequently  aggregates  an  amount  vastly  more  than  the  just 
value  of  the  property,  and  constitutes  no  criterion  of  the 
reasonableness  of  charges.  This  appears  from  the  case  of 
Dow  vs.  Beidelman  (125  U.  S.,  680),  which  was  as  follows : 

The  legislature  of  Arkansas  had  prescribed  a  maximum 
rate  of  three  cents  per  mile  for  the  transportation  of  pas- 
sengers in  that  State,  over  lines  of  railroads  exceeding 
seventy-five  miles  in  length. 

The  Memphis  &  Little  Rock  Railroad  Co.,  which  came 
within  the  terms  of  this  legislation,  refused  to  reduce 
rates  to  three  cents  per  mile,  and  was  sued  for  the  refusal. 


REFUSAL    TO  REDUCE  RATES.  49 

On  the  trial  it  was  admitted  as  a  fact  that  the  net  earn- 
ings of  the  company  under  the  statutory  rate  would  be 
less  than  one  and  a  half  per  cent,  on  the  original  cost  of 
its  road,  and  only  a  little  over  two  per  cent,  on  its  bonded 
indebtedness.  The  road,  however,  was  not  built  by  the 
company  named,  but  had  been  purchased  by  it  at  a  judi- 
cial sale,  and  the  new  company  had  issued  its  mortgage 
bonds  upon  the  purchased  property  bearing  eight  per 
cent,  interest.  The  purchase  price  of  the  property,  or 
the  price  paid  for  the  bonds,  or  the  amount  of  the  capital 
stock  of  the  new  company  were  not  disclosed.  Under 
these  circumstances  the  Court  was  asked  to  make  the 
following  declaration  of  law :  That  the  act  of  the  Arkan- 
sas legislature  above  referred  to  was  unconstitutional, 
null,  and  void,  because,  under  the  guise  of  regulating 
charges  for  the  carriage  of  passengers  on  railroads,  it 
amounted  virtually  to  the  confiscation  of  the  property  of 
the  railroad,  and  was  an  unreasonable,  unjust,  and  oppres- 
sive taking  of  private  property  for  public  uses  without 
compensation,  and  in  violation  of  the  constitution.  The 
Supreme  Court,  while  admitting  that  such  legislation 
might,  under  some  circumstances,  be  unconstitutional, 
said :  "  It  certainly  can  not  be  presumed  that  the  price 
paid  at  the  sale,  under  the  decree  of  foreclosure,  equalled 
the  original  cost  of  the  road,  or  the  amount  of  its  out- 
standing bonded  debt.  Without  any  proof  of  the  sum 
invested  by  the  re-organized  corporation  or  its  trustees, 
the  court  has  no  means,  if  it  would  under  any  circum- 


50  PUBLIC  REGULATION  OF  RAILWAYS. 

stances  have  the  power,  of  determining  that  the  rate  of 
three  cents  a  mile  fixed  by  the  legislature  is  unreason- 
able. Still  less  does  it  appear  that  there  has  been  any 
such  confiscation  as  amounts  to  a  taking  of  -property 
without  due  process  of  law."  It  is  to  be  observed  that 
the  court  here  entirely  disregarded  the  capitalization  as  a 
material  element  in  establishing  reasonable  charges,  and 
suggested  a  doubt  as  to  whether  even  the  actual  cost  to 
the  present  owners  of  the  property  would  constitute  a 
criterion  for  that  purpose.  But  to  afilirm,  as  was  done  in 
this  case,  and  in  the  Granger  cases,  that  the  State  may 
reduce  railroad  charges  below  the  point  which  will  enable 
the  companies  to  pay  interest  on  bonds  and  dividends  on 
stock, — or  even  below  the  point  which  will  enable  them 
merely  to  pay  full  interest  on  the  bonded  debt, — is  by  no 
means  to  afifirm  that  the  State  may  reduce  charges,  so  far 
as  to  prevent  a  reasonable  net  income  being  earned  on 
the  just  value  of  the  railway  property,  treating  its  entire 
operation  as  a  single  unit.  In  the  Granger  cases,  the 
suf^ciency  of  the  rates  fixed  by  public  authority  to  yield 
a  reasonable  net  income  on  the  just  value  of  the  property 
was  not  discussed  ;  the  controversy  being  as  to  the  right, 
or  constitutional  power  of  the  legislature  to  interfere  at 
all  with  railway  tariffs.  "  The  great  question  to  be  de- 
cided, and  which  was  decided,  and  which  was  argued  in 
all  those  cases,  was  the  right  of  a  State,  in  which  a  railroad 
company  did  business,  to  regulate  or  limit  the  amount  of 
any  of  these  traflfic  charges."  ' 

'  Wabash,  &c.,  R.  R.  Co.  vs.  Illinois,   ii8  U.  S.,  557. 


REGULATION  AND   LIMITATION.  5  I 

This  power  is  always  reserved  by  government  unless 
expressly  surrendered.  Rut  it  is  equally  true  that  "  be- 
yond the  sphere  of  the  reserved  powers,  the  vested  rights 
of  corporations  in  such  cases  are  surrounded  by  the  same 
sanctions,  and  are  as  inviolable  as  in  other  cases."  '  And 
in  connection  with  the  public  right  of  regulating  railroads 
and  limiting  their  charges,  it  has  been  declared,  by  way 
of  qualification,  "  that  it  is  not  to  be  inferred  that  this 
power  of  regulation  or  limitation  is  itself  without  limit. 
The  power  to  regulate  is  not  a  power  to  destroy,  and 
limitation  is  not  the  equivalent  of  confiscation.  Under 
pretence  of  regulating  fares  and  freights,  the  State  can 
not  compel  a  railroad  company  to  carry  persons  and  prop- 
erty without  reward  ;  neither  can  it  do  that  which  amounts 
in  law  to  a  taking  of  private  property  for  public  use, 
without  just  compensation,  or  without  due  process  of 
law."^  Now,  if  the  State  cannot  compel  the  railroads  to 
carry  persons  and  property  without  reward,  can  she  com- 
pel them  to  carry  at  rates  which  will  be  inadequate  to 
pay  the  expense  of  carrying?  If  the  rates  be  inadequate 
to  pay  the  operating  expenses,  they  are  really  carrying 
not  only  without  reward,  but  at  a  loss.  If  they  are  barely 
enough  to  pay  operating  expenses,  they  are  still  carrying 
without  reward.  It  is  only  when  the  gross  receipts  pay 
more  than  operating  expenses,  and  expenses  of  maintain- 
ing the  property,  that  any  thing  is  left  for  the  people 
whose  money  is  represented  in  the  railroad  and  its  equip- 


'  Shields  vs.  Ohio,  95  U.  S.,  319. 
'  See  R.  R.  Commis'^ion  cases  ante. 


52  PUBLIC  REGULATION  OF  RAILWA  YS. 

ment.  Then  only  are  they  in  any  just  sense  carrying  for 
reward.  Who,  then,  is  to  determine  whether  the  rates 
will  yield  income  sufficient  to  reward  the  company  (not 
merely  the  employes)  for  carrying  persons  and  property? 

Manifestly  the  legislature  or  a  commission  cannot  ulti- 
mately determine  this  question,  since,  if  it  had  that  power, 
it  might  recite  in  a  preamble  or  resolution  that  a  certain 
schedule  of  rates  would  reward  the  railroad  company  for 
its  services,  and  fix  that  as  a  maximum  of  rates,  whereas 
it  might  be  perfectly  demonstrable  that  such  a  schedule 
of  rates  would  not  even  pay  operating  expenses.  This 
manifestly  would  be  to  compel  the  railroads  to  carry  per- 
sons and  property  without  reward. 

The  question,  then,  presented  in  this  light,  must  ulti- 
mately become  a  judicial  one.  Nor  is  this  conclusion 
repugnant  to  the  decisions  in  the  Granger  cases.  In  them 
the  question  was  merely  whether  the  legislature  could 
regulate  railway  charges  at  all,  and  the  question  whether 
the  regulation  denied  to  the  owners  of  the  property  a  just 
compensation  for  its  use  was  not  presented.  The  courts 
will  presume,  however,  where  the  legislature  or  a  commis- 
sion fixes  maximum  rates,  that  they  are  adequate  to  afford 
a  just  compensation  for  the  use  of  the  property.  The  rates 
will  be  presumed  to  be  reasonable  to  the  carrier  as  well 
as  to  the  shipper.  And  in  certain  cases  this  presumption 
is  conclusive.  This  is  the  case  in  a  controversy  between 
the  railroad  company  and  one  of  its  customers  over  the 
price  of  a  certain  service.     The  price  fixed  by  statute  or 


FORFEIT  OF  CHARTER.  53 

by  the  commission  is  there  conclusive  of  the  rights  of  the 
parties,  and  the  company  cannot  recover  more  than  the 
statutory  price,  by  showing  that  the  amount  claimed 
would  only  be  a  reasonable  compensation  for  the  service 
rendered.' 

The  question  of  reasonableness  in  a  controversy  between 
the  carrier  and  a  single  shipper  in  regard  to  a  single  trans- 
action is  no  longer  a  judicial  one,  after  the  legislature  or 
commission  has  fixed  a  rate.  But  this  may  be  reconciled 
with  the  right  of  the  judicial  department  of  the  govern- 
ment to  inquire  into  the  reasonableness,  of  the  schedule 
of  rates  as  a  whole,  in  a  case  where  the  public  is  substan- 
tially a  party.  And  this  may  be  in  a  proceeding  to  forfeit 
the  charter  of  a  company  for  refusing  to  carry  at  the 
statutory  rates,'^  or,  it  would  seem,  in  a  suit  in  equity  to 
injoin  the  enforcement  of  the  law.  Under  this  view,  to 
make  the  question  a  judicial  one,  the  distinct  averment 
must  be  made  in  presenting  the  case  of  the  railroads  to 
the  court,  that  the  schedule  of  rates  as  a  whole,  treating 
the  continuous  operation  of  the  road  as  a  single  unit,  will 
afford  no  net  return,  or  no  just  compensation,  for  the  use 
of  the  property,  estimated  at  its  Just  value,  as  distinguished 
from  its  capitalization. 

It  does  not  follow  because  a  single  item  of  transporta- 
tion is  fixed  in  a  legislative  schedule  of  rates  at  a  price 
which  would  be  unreasonable,  if  standing  alone,  that  the 
schedule  as  a  whole  is  unreasonable.  The  legislature  (or 
'  Railroad  Co.  vs.  Ackley,  94  U.  S.,  179.  "^  Id, 


54  PUBLIC  REGULATION  OF  RAILWAYS. 

commission)  in  fixing  rates  may — and  with  good  reason — 
make  some  items  of  transportation  bear  a  much  less  share 
than  others  of  the  expenses  etc.,  in  proportion  to  the  cost 
of  the  service  rendered. 

This,  in  fact,  is  what  the  railroad  companies  constantly 
do  themselves. 

And  the  corporation  cannot  be  heard  to  object  thereto, 
so  long,  at  least,  as  the  compensation  received  by  it  for 
carriage  over  its  road  as  a  whole  is  reasonable.' 

It  is  the  entire  schedule  of  rates  and  its  effect  on  the 
earnings,  which  is  a  public  question,  and  to  that  the  con- 
troversy between  the  carrier  and  a  single  shipper  is  merely 
collateral.  Hence  in  such  a  controversy  the  rate  fixed  by 
law  is  conclusively  presumed  to  be  reasonable,  just  as  a 
judgment  of  a  court  of  competent  jurisdiction  collaterally 
involved  in  any  suit  is  conclusively  presumed  to  be  right. 
But  as  the  judgment  might  be  directly  impeached  as  con- 
trary to  law,  so,  it  would  seem,  may  an  act  of  legislation, 
fixing  a  schedule  of  railroad  rates  plainly  inadequate  to 
afford  a  fair  revenue,  or  conferring  on  a  commission  un- 
limited powers  for  that  purpose,  be  directly  impeached  as 
subversive  of  natural  justice  and  constitutional  rights. 

Legislation  of  such  a  character  as  that,  it  could  be  dem- 
onstrated, must  necessarily  deprive  railroad  companies  of 
all  profit  or  of  a  reasonable  profit  on  the  just  value  of  their 
property,  would  certainly  be  unjustifiable,  and  would  hardly 
be  sustained  by  the  courts,  unless  in  the  absence  of  such 

'  Ex  parte  Koeler,  23  Fed.  Rep.,  p.  529. 


RIGHTS  OF  COMPANIES  GUARDED.  55 

legislation  the  public  will  inevitably  sustain  grievous  and 
irremediable  injury.  The  same  may  be  said  of  legislation 
which  confers  on  a  commission,  or  other  legislative  agency, 
unlimited  control  over  railroad  charges  enforcible  by  pen- 
alties, without  providing  any  redress  for  the  railway  com- 
panies against  injustice  in  the  action  of  the  commission. 
It  has  been  observed  that  in  the  Mississippi  law,  which 
was  sustained  by  the  Supreme  Court,'  the  rights  of  the 
companies  were  carefully  guarded  in  this  respect.  And 
the  provision  for  this  purpose  was  alluded  to  by  the  court 
as  an  answer  to  the  argument  that  the  companies  were 
denied  the  equal  protection  of  the  laws,  and  might  be 
deprived  of  their  property  without  due  process  of  law  or 
due  compensation  therefor.  This  was  the  provision  that, 
in  all  cases  where  a  company  might  be  sued  for  violating 
the  tariff  of  rates  as  fixed  by  the  commission,  "  it  may  be 
shown  in  defence  that  any  tariff  so  fixed  is  unjust." 

The  advocates  of  a  commission  with  unlimited  powers 
over  railroad  companies  rely  in  support  of  the  constitution- 
ality of  their  views  upon  the  opinion  of  Justice  Woods,  of 
the  Supreme  Court,  delivered  in  the  United  States  Circuit 
Court  in  Georgia.^  The  validity  of  the  Railroad  Commis- 
sion Act  of  that  State  was  there  brought  in  question,  on 
an  application  for  an  injunction  to  prevent  the  commis- 
sioners from  enforcing  the  law.  That  act  empowered  the 
commissioners  to  make  reasonable  and  just  rates  of  freight 


'  See  Railroad  Commission  cases  ante. 
Tilley  vs.  Railroad  Co.,  5  Fed.  Reporter,  641. 


$6  PUBLIC  REGULATION   OF  RAILWAYS. 

and  passenger  tariffs  for  all  the  railroads  in  the  State,  and 
provided  that  in  all  suits  brought  against  the  railroads 
involving  their  charges  or  discriminations  therein,  the 
schedule  of  rates  fixed  by  the  commission  should  be 
deemed  and  taken  as  "  su^cient  evidence  "  that  the  rates 
therein  fixed  are  just  and  reasonable.  It  was  claimed 
that  the  law  was  unconstitutional,  because  this  provision 
deprived  the  companies  of  the  right  of  trial  by  jury,  and 
denied  them  the  equal  protection  of  the  law  accorded  to 
other  persons.  Upon  this  point  Judge  Woods  said  :  "  In 
this  provision  the  legislature  has  exercised  the  power,  ex- 
ercised by  all  the  legislatures,  both  Federal  and  State,  of 
prescribing  the  effect  of  evidence,  and  it  has  done  nothing 
more. 

"  Even  in  criminal  cases  Congress  has  declared  that  cer- 
tain facts  proved  shall  be  evidence  of  guilt.  For  instance, 
in  section  3,082  of  the  United  States  Revised  Statutes,  it 
is  provided  that  whenever  on  an  indictment  the  defendant 
is  shown  to  be  in  possession  of  smuggled  goods,  '  such 
possession  shall  be  deemed  evidence  sufficient  to  author- 
ize a  conviction,  unless  the  defendant  shall  explain  the 
possession  to  the  satisfaction  of  the  jury.'  The  statute- 
books  are  full  of  such  acts,  but  it  has  never  been  consid- 
ered that  this  impairs  the  right  of  trial  by  jury." 

The  illustration  used  by  the  judge  from  the  Revised 
Statutes  indicates  that  he  constl-ued  the  expression  "  suffi- 
cient evidence,"  used  in  the  Law,  to  refer  to  priina-facie 
evidence  merely.     Under  this  construction  the  objection 


CONCLUSIVE  AND   SUFFICIENT  EVIDENCE.  57 

urged  to  the  provision  was  manifestly  untenable.  But  if 
the  expression  "  sufficient  evidence  "  had  been  held  equiva- 
lent to  "  conclusive  evidence,"  it  is  difficult  to  see  how  the 
objection  could  have  been  answered.  Under  the  former 
construction,  the  railroads  still  have  the  right  to  resort  to 
the  regular  tribunals  constituted  of  court  and  jury  for  re- 
dress against  the  unjust  acts  of  the  commission.  Under 
the  latter,  they  would,  so  far  as  the  constitutional  guaran- 
ty of  the  right  of  jury  trial  is  of  any  substantial  value,  be 
practically  deprived  of  that  right. 

In  the  first  case,  the  burden  of  justifying  their  violations 
of  the  orders  of  the  commission  is  imposed  upon  the  rail- 
roads ;  but,  in  the  latter,  they  are  denied  the  means,  or  the 
right,  of  justifying  themselves  by  any  evidence  at  all,  con- 
trary to  the  views  of  the  commission.  In  point  of  fact, 
in  this  case,  the  court  did  consider  the  evidence  adduced, 
as  to  the  probable  effect  upon  the  revenues  of  the  com- 
pany of  the  rates  established  by  the  commission,  and 
came  to  the  conclusion  (such  was  the  conflict  of  opinion 
among  witnesses)  that  the  only  way  of  ascertaining  the 
effect  would  be  by  actual  experiment.  The  commission- 
ers expressed  an  entire  willingness  to  change  their  schedule 
of  rates,  should  the  experiment  prove  it  to  be  unjust  to 
the  railroads.  And  the  Court  concluded  that:  "The  rail- 
road company,  after  testing  the  results  of  the  schedule  of 
rates  fixed  by  the  commission  and  finding  it  to  be  unjust 
and  unreasonable,  can  apply  to  the  commission  for  re- 
dress.    If  redress  is  denied  them  there,  they  can  apply  to 


58  PUBLIC  REGULATION  OF  RAILWAYS. 

the  legislature  for  relief.  Believing  the  law  under  which 
the  commissioners  are  appointed  to  be  within  the  consti- 
tutional power  of  the  legislature,  the  redress  must  come 
either  from  the  commissioners  or  from  the  General  Assem- 
bly. It  is  not  in  the  power  of  this  court  to  give  relief." 
This  language,  though  not  necessary  for  the  decision,  may 
be  construed  to  indicate  that,  in  Judge  Woods'  opinion, 
the  courts  can  not  interfere  to  prevent  unjust  and  oppres- 
sive action  on  the  part  of  the  commission  (unless  its 
powers  are  limited  in  terms),  no  matter  how  plain  the  evi- 
dence of  it  may  be. 

But  this  view  scarcely  harmonizes  with  the  reasonable 
interpretation,  and  application  of  the  constitutional  limi- 
tations we  are  now  considering,  or  with  conclusions  which 
seem  to  be  fairly  deducible  from  several  remarks  (hereto- 
fore commented  on)  which  were  carefully  and  purposely 
made  in  the  delivery  of  opinions  from  the  supreme  bench. 

In  a  case  involving  a  single  shipment — an  implied  con- 
tract between  the  freighter  and  the  railway  company, — it 
is  true  that  no  evidence  can  be  received  aliunde  the  rate 
fixed  by  public  authority.  But  there  is  nothing  in  the 
decisions  of  the  Supreme  Court  to  justify  legislation  which 
would  deprive  the  railroads  of  the  right  to  have  tested  in 
the  regular  judicial  tribunals  of  the  country,  the  question 
whether  rates,  fixed  either  directly  by  the  legislature  or 
by  a  commission,  are  not  such  as,  considering  the  entire 
operation  of  the  road  and  not  merely  isolated  transac- 
tions with  individuals,  will  compel  those  operations  to  be 


RE  A  SON  A  BLE  MA  XIM  UM   RA  TE  S.  59 

carried  on,  if  at  all,  at  a  profit  grossly  inadequate  to  the 
just  value  of  the  property,  or  perhaps  at  an  actual  loss. 
To  preclude  judicial  inquiry  into  such  a  question  savors 
strongly  of  oppression,  and  of  a  denial  of  "  equal  protec- 
tion of  the  laws."  It  is  possible  (as  may  be  shown), 
by  prohibiting  discriminations,  as  well  as  by  fixing  maxi- 
mum rates,  to  deprive  a  railway  company  of  a  portion,  at 
least,  of  its  profits,  under  circumstances  where  the  enforce- 
ment of  the  prohibition  will  result  in  no  benefit  to  the 
community,  but  will  deprive  the  company  of  any  adequate 
return  on  the  just  value  of  its  property. 

This  result  may  even  sometimes  follow,  from  the  estab- 
lishment of  an  absolute  minimum  rate,  or  the  adoption  of 
an  inflexible  rule  forbidding  a  greater  aggregate  charge 
for  a  short  than  a  longer  haul,  under  any  circumstances  ; 
or  from  other  legislation  which,  with  the  purpose  of  pre- 
venting discriminations  on  the  part  of  railroads,  fails  to 
take  note  of  certain  circumstances  beyond  the  control  of 
either  railroads  or  the  legislature.  Under  these  circum- 
stances, such  legislation  can  scarcely  be  judicially  sustained. 

Since  this  chapter  was  written  the  questions  here  dis- 
cussed have  been  elaborately  considered  in  connection 
with  the  Iowa  Railroad  Law  of  1888.  (See  "  The  Iowa 
Railroad  Case,"  compiled  by  H.  S.  Fairall.)  By  that  the 
railroad  commissioners  were  empowered  and  directed  to 
make,  for  each  of  the  railroad  companies  doing  business  in 
that  State,  a  schedule  of  reasonable  maximum  rates  and 
charges  for  the  transportation  of  freight  and  cars  on  each 


6o  PUBLIC  REGULATION  OF  RAILWAYS. 

of  said  roads.  The  commissioners  prepared  a  schedule 
and  tariff  of  rates,  and  were  proceeding  to  put  it  into 
effect  when  certain  railroad  companies  applied  both  in 
the  Federal  and  in  the  State  courts  for  injunctions  against 
the  enforcement  of  the  commission's  tariff.  One  of 
the  principal  grounds  upon  which  the  application  was 
based,  was  that  the  schedule  of  rates  prescribed  was  un- 
reasonably low,  and  would,  if  enforced,  disable  the  com- 
panies from  earning  sufftcient  compensation  to  pay  fixed 
charges  and  operating  expenses.  The  State  authorities 
insisted  that  the  courts  had  no  right  to  inquire  whether 
the  schedule  was  reasonable  or  not  ;  and  that  the  commis- 
sion having  fixed  a  tariff  of  charges  in  accordance  with  the 
forms  of  law,  all  inquiry  in  the  courts  was  at  an  end.  In 
each  court,  however,  it  was  decided  that,  assuming  the 
truth  of  the  allegation  that  the  tariff  as  fixed  would  not 
afford  compensation  to  the  carriers,  the  enforcement  of 
the  tariff  might  be  prevented.  Judge  Brewer  in  the  Fed- 
eral court  said  :  "  Coming  now  to  the  question  of  the  sched- 
ule as  prepared,  I  remark  that  the  schedule  as  a  whole 
must  control.  And  its  validity  or  invalidity  does  not  de- 
pend on  the  sufficiency  or  insufficiency  of  the  rates  on  any 
few  particular  subjects  of  transportation.  .  .  .  The 
rule  therefore  to  be  laid  down  is  this,  that  where  the  pro- 
posed rates  will  give  compensation,  however  small,  to  the 
owners  of  the  railroad  property,  the  courts  have  no  power 
to  interfere.  Appeal  must  then  be  made  to  the  legislature 
and  the  people.     But  where  the  rates  prescribed  will  not 


NO  TRANSPORT  WITHOUT  COMPENSATION.         6l 

pay  some  compensation  to  the  owners,  then  it  is  the  duty 
of  the  courts  to  interfere  to  protect  the  companies  from 
such  rates.  Compensation  impHes  three  things  :  Payment 
of  cost  of  service,  interest  on  bonds,  and  then  some  divi- 
dends. .  ,  .  While  by  reducing  the  rates  the  value  of 
the  stockholders'  property  may  be  reduced,  in  that  less 
dividends  are  payable  (and  that  power  of  the  legislature 
over  property  is  conceded),  yet  if  the  rates  are  so  reduced 
that  no  dividends  are  possible,  and  especially  if  they  are 
such  that  the  interest  on  the  mortgage  debt  is  not  earned, 
then  the  enforcement  of  the  rates  means  either  confisca- 
tion, or  compelling,  in  the  language  of  the  Supreme 
Court,  the  corporations  to  carry  persons  or  property  with- 
out reward."  Judge  Fairall  in  the  State  court  said  :  "  It 
requires  no  argument  to  demonstrate  the  proposition,  that 
to  require  a  common  carrier  to  transport  property  for  less 
than  a  just  and  reasonable  charge,  is  to  require  him  to 
carry  it  without  reward,  and  to  do  what,  says  Chief-Jus- 
tice Waite  in  Farmers'  Loan  and  Trust  Co.  vs.  Stone,  1 16 
U.  S.,  33,  '  amounts  to  a  taking  of  private  property  for 
public  use  without  just  compensation,  or  without  due 
process  of  law.'  ...  If,  then,  as  it  is  evident  both 
on  principle  and  authority,  it  is  not  competent  for  cither 
the  legislature  or  a  board  acting  under  it  to  require  a 
common  carrier  to  transport  property  without  reward, 
where  but  in  the  courts  can  the  complaining  party  go  for 
redress  ?  .  .  .  The  subject  of  controversy  is  the  com- 
pensating use  of  plaintiff's  property,  and  the  value  of  such 


62  PUBLIC  REGULATION  OF  RAILWAYS. 

property,  as  a  rule,  is  determined  by  its  earnings.  .  .  . 
The  questions  involved  in  this  case  are  purely  legal,  and 
the  main  one  is  the  power  of  a  State  to  make  and  en- 
force rates  of  transportation  to  be  charged  by  railroad 
companies  and  other  common  carriers,  when  from  the 
pleadings  such  rates  are  admitted  to  be  so  low  as  not  to 
pay  fixed  charges  and  operating  expenses.  This  question, 
which  has  never  been  squarely  determined  by  the  Supreme 
Court,  either  of  this  State  or  of  the  United  States,  is  one 
which  must  be  met  by  the  courts  ;  and  passed  upon  the 
same  as  other  controverted  rights  between  the  State  and 
the  individual.  There  is  a  line  between  rates  which  are 
compensatory  to  the  carrier,  and  those  which  are  not ; 
and  on  principle  as  well  as  authority,  when  complaint  is 
made  of  an  injury  to  private  rights  by  the  acts  of  public 
ofificials,  as  is  klleged  in  this  case,  it  is,  as  in  all  other 
alleged  infringements  of  such  rights,  the  duty  of  judicial 
tribunals  to  investigate  and  determine  the  very  right  of 
the  matter,  whether  it  involves  the  validity  of  a  statute, 
or  the  legality  of  the  acts  of  officers  acting  thereunder." 

The  conclusion  here  arrived  at,  namely,  that  the  ques- 
tion of  the  reasonableness  of  a  schedule  of  railroad  charges 
fixed  by  public  authority  must  ultimately  be  judicially 
determined,  is  irresistible. 

But  in  the  decisions  just  quoted  from,  opinions  are  ex- 
pressed, as  to  the  measure  of  compensation  which  the 
schedules  as  a  whole  must  furnish,  that  scarcely  appear  to 
be  well  founded.     Thus  Judge  Brewer  distinctly  ^leclares 


CAPITALIZATION  OF  PROPERTY.  63 

that  the  courts  should  interfere,  where  the  commissions 
schedules  will  disable  the  companies  from  paying,  ist, 
operating  expenses  ;  2d,  interest  on  bonds  ;  and  3d,  some 
dividends,  however  small. 

Under  this  opinion  the  capitalization  of  the  property 
is  to  determine  the  extent  of  the  compensation  to  which 
the  company  is  entitled,  with  this  limitation  only,  that 
the  stockholder,  as  distinguished  from  the  bondholder, 
must  be  satisfied  with  the  merest  pittance,  in  the  shape  of 
a  dividend,  that  the  public  choose  to  allow  him.  This  is 
a  most  remarkable  conclusion,  and,  logically  carried  out, 
would  result  in  this  :  that  a  road  built  and  equipped  with 
subscribed  money  (that  is,  with  the  proceeds  of  its  stock, 
and  without  any  bonded  debt),  at  a  cost  of  say  $30,000 
per  mile,  might  be  compelled  to  submit  to  a  tariff  which, 
after  paying  operating  expenses,  would  yield  a  net  in- 
come of  say  \  of  one  per  cent.,  or  $150  per  mile;  while 
a  road  having  no  better,  or  perhaps  less  favorable, 
trafific  conditions,  built  with  the  proceeds  of  6  per  cent, 
bonds  to  the  amount  of  $30,000  per  mile,  could  not  be 
compelled  to  accept  a  tariff  which  would  yield  net  earn, 
ings  to  a  less  amount  than  $1,800  per  mile.  No  such  dis- 
tinction as  this  can  be  just.  The  consideration  of  the 
character  of  the  capitalization  of  a  road, — that  is,  whether 
consisting  of  bonds  or  stock, — must  necessarily  be  mislead- 
ing in  coming  to  a  conclusion  upon  the  reasonableness  of 
a  schedule  of  tariff  charges.  And  to  a  very  great  extent 
the  amount  of  the  capitalization  is  also  immaterial.     The 


64  PUBLIC  REGULATION  OF  RAILWAYS. 

cost,  as  well  as  the  just  value,  of  railroad  property,  may 
be  something  entirely  apart  from  the  character  and  amount 
of  the  securities  issued  against  it.  The  true  conclusion 
seems  to  be  that  the  corporation  (which  is  a  person  entirely 
distinct  from  either  its  creditors  or  its  stockholders)  is  en- 
titled to  such  a  schedule  of  rates  as  will  enable  it  to  earn 
operating  expenses,  and,  in  addition  thereto,  a  sum  which 
shall  be  a  reasonable  income  on  the  just  value  of  its  prop- 
erty. And  whether  this  net  income  be  distributed  to 
stockholders  or  bondholders  is  entirely  immaterial. 

In  connection  with  the  revisory  powers  of  the  courts 
over  legislation  intended  for  the  regulation  of  railroad 
charges,  the  case  of  ex  parte  Koehler  {2^  Fed.  Rep.,  p.  529) 
may  be  referred  to.  Some  of  the  remarks  of  the  Court  in 
that  case  are  very  forcible  in  support  of  the  views  which 
have  been  advanced  in  this  chapter.  The  question  involved 
was  the  validity  of  an  act  of  the  Oregon  legislature,  for- 
bidding a  greater  charge  for  a  shorter  than  a  longer  haul ; 
and  the  Court  said  :  "The  question,  zXthongh  prima  facie 
one  of  discrimination,  directly  involves  the  right  to  a  rea- 
sonable compensation.  I  assume  that  the  State  has  the 
power  to  prevent  a  railway  company  from  discriminating 
between  persons  and  places  for  the  sake  of  putting  one  up 
or  another  down,  or  any  other  reason  than  the  real  exi- 
gencies of  its  business.  Such  discrimination  it  seems  to 
me  is  a  wanton  injustice,  and  may  therefore  be  prohibited. 
It  violates  the  fundamental  maxim  which  in  effect  forbids 
any  one  to  so  use  his  property  as  to  injure  another.    .   .    .* 


OBJECT  OF  DISCRIMINA  TION.  65 

but  where  the  discrimination  is  between  places  only,  and 
is  the  result  of  competition  with  other  lines  or  means  of 
communication,  the  case  I  think  is  different.  ...  If 
the  legislature  cannot  require  a  railway  corporation 
formed  under  the  laws  of  the  State,  to  carry  freight  for 
nothing,  or  at  any  less  rate  than  a  reasonable  one,  then  it 
necessarily  follows  that  this  provision  of  the  act,  cannot 
be  enforced  so  far  as  to  prevent  the  railway  from  compe- 
ting with  the  water  craft  .  .  .  even  if  in  so  doing  they 
are  compelled  to  charge  less  for  a  long  haul  than  for  a 
short  one  in  the  same  direction.  It  is  not  the  fault  or  con- 
trivance of  the  railways  that  enforces  this  discrimination, 
but  it  is  the  necessary  result  of  circumstances  altogether 
beyond  its  control.  It  is  not  done  wantonly  for  the  pur- 
pose of  putting  the  one  place  up,  or  the  other  down,  but 
only  to  maintain  its  business  against  rival  and  competing 
lines  of  transportation." 


CHAPTER  IV. 

Limitation  on  State  Powers  Arising  from  Exclusive  Right  of 
Congress  to  "  Regulate  Commerce  among  the  States  " — Inter- 
state Commerce  Defined  and  Illustrated — States  Cannot 
Regulate  Charges  Thereott,  and  Probably  Cannot  Prevent 
Traffic  Arrangements  between  its  Own  and  Foreign  Cor- 
porations in  Respect  Thereto — But  Leases  and  Consolidations 
between  Domestic  and  Foreign  Corporatiotis,  Probably  under 
Control  of  States  and  not  of  Congress — Sources  and  Limita- 
tions of  Powers  of  Congress  Discussed. 

The  most  important  limitation,  perhaps,  upon  the 
powers  of  the  State  legislatures  in  the  control  of  railroad 
transportation  arises  where  the  transportation  is  from 
points  without  the  State  to  points  within,  or  vice  versa  ; 
or  where  it  is  entirely  through  the  State,  from  and  to 
points  without.  The  limitation  has  its  origin  in  the 
constitutional  provision  conferring  on  Congress  the  power 
to  regulate  commerce  among  the  several  States.  No 
doubt  seems  ever  to  have  been  entertained  that  a  State 
would  be  precluded  by  this  provision  from  fixing  rates 
where  neither  terminus  of  the  transit  is  within  its  limits. 
But  where  freight  is  taken  up  within  a  State  and  carried 
without,  or  taken  up  outside  and  brought  within,  con- 
flicting views  of  the  regulative  powers  of  the  State  have 

66 


COMPULSORY  PUBLICATION  OF  RATES.  6 J 

until  recently  been  entertained.  There  are  undoubtedly 
instances  in  which  a  State  may,  in  the  absence  of  Con- 
gressional action,  pass  laws  which  amount  to  a  regulation 
of  commerce  among  the  States.  They  are  usually  cases 
where  the  direct  object  of  the  State  legislation  is  the  en- 
forcement of  police  regulations,  and  where  the  efTect  upon 
commerce  is  only  incidental.  For  example,  a  State  may 
(where  Congress  has  not  acted  on  the  subject)  compel 
railroad  companies  operating  within  its  limits  to  publish 
their  schedules  of  rates,  and  to  confine  their  charges 
within  the  published  limits,  even  where  the  charge  is  for 
transportation  from  or  to  another  State.  Such  a  require- 
ment was  unanimously  sustained  by  the  Supreme  Court 
as  a  police  regulation.' 

On  substantially  similar  grounds  a  State  law  requiring 
locomotive  engineers  to  be  examined  and  licensed  as  such 
by  a  public  board,  as  a  prerequisite  to  the  pursuit  of  their 
calling,  has  been  sustained  by  the  Supreme  Court  of  the 
United  States ""  (the  legislation  of  Congress  containing  no 
provision  on  the  subject),  although  the  engineer's  regular 
"  run  "  was  between  points  located  in  different  States. 

But  national  regulationSi_ey.en  on  such  subjects,  will 
supersede  and  nullify  State  laws  so  far  as  applicable  to 
interstate  commerce. 

For,  as  said  by  the  Court  in  the  case  last  referred  to : 

'  Fuller  vs.  Railroad  Co.,  17  Wall,  560.  (Prior  to  the  enactment  of  the 
Interstate  Commerce  Law.)  /  p 

^  Smith  vs.  Alabama,  124  U.  S.,  p.  465.  (The  Alabama  law  was  passed 
after  the  Interstate  Act,  but  the  latter  has  no  conflicting  provision.) 


68  PUBLIC  REGULATION  OF  RAILWAYS. 

"  It  would  indeed  be  competent  for  Congress  to  .  .  . 
prescribe  the  qualifications  of  locomotive  engineers  for 
employment  by  carriers  engaged  in  foreign  or  interstate 
commerce.  It  has  legislated  upon  a  similar  subject  by 
prescribing  the  qualifications  for  pilots  and  engineers  of 
steam  vessels  engaged  in  the  coasting  trade  and  navigating 
the  inland  waters  of  the  United  States  .     and  such 

legislation  is  undoubtedly  justified  on  the  ground  that  it 
is  incident  to  the  power  to  regulate  commerce. 
The  power  might  with  equal  authority  be  exercised  in 
prescribing  the  qualifications  for  locomotive  engineers 
employed  by  railroad  companies  engaged  in  the  transpor- 
tation of  passengers  and  goods  among  the  States,  and  in 
that  case  would  supersede  any  conflicting  provisions  on 
the  same  subject  made  by  local  authority."  Nor  is  a 
railroad  company  relieved  from  State  regulation  and  con- 
trol simply  because  it  has  been  incorporated  by  and  is 
carrying  on  business  in  other  States  through  which  its 
road  runs.  The  corporation  created  by  each  State  is  for 
all  the  purposes  of  local  government  a  domestic  corpora- 
tion, and  its  railroad  within  the  State  is  a  matter  of 
domestic  concern.  Hence  the  State  may  govern  such  a 
corporation  as  it  does  all  domestic  corporations  as  to 
every  act  and  every  thing  within  the  State,  which  is  the 
lawful  subject  of  State  government.  It  may  beyond  all 
question  regulate  freights  and  fares  for  business  done  ex- 
clusively within  the  State.  But  nothing  can  be  done  by 
the  State  which  will  act  as  a  burden   on  the  interstate 


INTERSTATE   COMMERCE.  69 

commerce  of  the  company,  or  impair  its  facilities  for  inter- 
state traffic'  This  suggests  the  inquiry,  What  is  inter- 
state commerce  ?  And  the  answer  is  that  "  whenever  a 
commodity  has  begun  to  move  as  an  article  of  trade  from 
one  State  to  another,  commerce  in  that  commodity  be- 
tween the  States  has  commenced.  The  fact  that  several 
different  and  independent  agencies  are  employed  in  trans- 
porting the  commodity,  some  acting  in  one  State,  and 
some  acting  through  two  or  more  States,  does  in  no 
respect  affect  the  character  of  the  transaction.  To  the 
extent  to  which  each  agency  acts  in  that  transportation  it 
is  subject  to  the  regulation  of  Congress."  ^ 

If  the  authority  of  Congress  "  does  not  extend  to  an 
agency  in  such  commerce,  when  that  agency  is  confined 
within  the  limits  of  a  State,  its  entire  authority  over  inter- 
state commerce  may  be  defeated.  Several  agencies  com- 
bining, each  taking  up  the  commodity  transported  at  the 
boundary  line  at  one  end  of  a  State,  and  leaving  it  at  the 
boundary  line  at  the  other  end,  the  Federal  jurisdiction 
would  be  entirely  ousted,  and  the  constitutional  provision 
would  become  a  dead  letter."  ^  It  appears  then  that  the 
starting-point  and  the  destination  of  an  article  of  com- 
merce are  to  be  looked  to,  in  order  to  determine  its 
character  as  domestic,  or  interstate,  commerce.  If  the 
article  starts  from  one  State  and  is  destined  to  another  it 
belongs  to  interstate  commerce,  and  the  means  by  which 

'  See  Railroad  Commission  cases  ante. 
■  '  The  Daniel  Ball,  10  Wall,  557.  »  Id. 


70  PUBLIC  REGULATION   OF  RAILWAYS. 

it  is  transported  to  its  place  of  destination  is  immaterial, 
as  is  also  the  question  whether  such  transportation  is  to 
be  continuous  and  uninterrupted  across  State  lines,  or 
whether  the  article  is  to  be  transferred  from  one  agency 
or  vehicle  of  transportation  to  another,  at  the  State  line 
or  elsewhere.  It  is  still  an  article  of  interstate  commerce, 
and  every  agency  handling  it  is  as  to  it  subject  to  regula- 
tion by  Congress.  But  the  mere  design  and  intention  or 
preparation  to  ship  a  commodity  from  one  State  to 
another  does  not  bring  it  within  the  definition  of  "com- 
merce among  the  States."  "  The  point  of  time  when 
State  jurisdiction  over  the  commodities  of  commerce  be- 
gins and  ends  is  not  an  easy  matter  to  define."  Articles 
intended  for  exportation  to  another  State,  and  which 
have  even  been  brought  to  and  deposited  at  a  place  of 
shipment  for  that  purpose,  do  not  become  subject  to 
Federal  jurisdiction  until  actually  shipped  and  started  on 
their  final  journey  out  of  the  State.  Up  to  that  time  the 
"  exportation  is  a  matter  altogether  in  fieri,  and  not  at  all  a 
fixed  and  certain  thing."  But  this  "  does  not  present  the 
predicament  of  goods  in  course  of  transportation  through  a 
State,  though  detained  for  a  time  within  the  State.  .  .  . 
Such  goods  are  already  in  the  course  of  commercial 
transportation,  and  are  clearly  under  the  protection  of 
the  Constitution."  '  Under  these  principles,  for  instance, 
if  an  Illinois  farmer  were  to  ship  grain  to  Chicago,  where 
the  products  of  the  State  accumulate  before  their  final 

'  Coe  vs.  Errol,  ii6  U.  S.,  5i7- 


ACTION    TO  RECOVER.  7 1 

carriage  east  begins,  the  shipment  would  be  subject  to 
the  regulative  laws  of  the  State  and  not  of  Congress, 
although  it  might  amount  to  a  certainty  that  that  v&xy 
grain  would  ultimately  be  forwarded  to  the  seaboard. 
But  if  he  were  to  bill  the  grain  directly  from  his  shipping 
station  to  New  York,  then  the  shipment  would  be  exempt 
from  State  regulation  even  within  the  limits  of  the  State. 
This  question  has  only  recently  been  decided  by  the 
Supreme  Court,'  and  a  Strong  minority  of  the  court  dis- 
sented from  the  opinion.  The  question  arose  in  an  action 
brought  by  the  State  of  Illinois  to  recover  a  penalty  for 
the  breach  of  a  statute  "to  prevent  extortion  and  unjust 
discrimination  in  the  rates  charged  for  the  transportation 
of  passengers  and  freight  on  railroads  in  the  State."  This 
statute  provided,  in  substance,  that  if  any  railroad  com- 
pany should  charge,  for  the  transportation  of  passengers 
and  freight  upon  its  railroad  for  any  distance  within  the 
State,  the  same  or  more  than  is  at  the  same  time  charged 
for  the  transportation  in  the  same  direction  of  any  passen- 
ger or  like  quantity  of  freight  of  the  same  class  over  a 
greater  distance  on  the  same  railroad,  it  should  be  deemed 
guilty  of  unjust  discrimination,  and  be  liable  to  a  specified 
penalty.  The  specific  discrimination  complained  of  was 
a  greater  charge  per  car-load  from  Oilman  to  New  York 
than  from  Peoria  to  New  York,  on  the  same  class  of 
freight — Oilman  being  nearer  to  New  York  than  Peoria, 

'Wabash,  etc.,  R.  R.  Co.  vs.  Illinois,  n8  U.  S.,  557.     (Prior  to  Inter- 
state Commerce  Act.) 


72  PUBLIC  REGULA  TION  OF  RAIL  WA  YS. 

and  the  portion  of  the  railroad  between  Oilman  and 
Peoria  being  wholly  within  the  State.  The  Illinois  court 
held  that  the  amount  of  the  charge  in  each  instance  for 
the  distance  traversed  through  the  State  was  proportioned 
to  the  amount  charged  for  the  whole  distance  to  New 
York,  and  hence  that  the  law  of  the  State  forbidding  a 
greater  charge  for  the  less  distance  was  violated  within  its 
own  limits. 

The  sole  question  before  the  Supreme  Court  was  the 
validity  of  the  Illinois  law,  in  the  absence  of  Congressional 
legislation  covering  the  subject '  ;  and  upon  this  question 
the  members  of  the  court  were  divided,  both  as  to  the 
principles  underlying  it  and  as  to  the  efTect  of  previous 
decisions,  as  precedents  in  point.  The  Chief-Justice  and 
Justices  Bradley  and  Gray  were  of  opinion  that  the  Illinois 
law  was  valid  both  upon  principle  and  precedent.  Justice 
Bradley,  delivering  the  opinion  of  the  minority,  made  an 
exceedingly  clear  and  forcible  argument  in  vindication  of 
their  views,  based  upon  the  power  of  the  State  over  its 
own  highways.  And  he  declared  that  the  very  point  in 
question  had  already  been  decided  in  one  of  the  Granger 
cases.^  An  examination  of  these  cases  alone  certainly 
seems  to  sustain  Judge  Bradley's  opinion,  and  the  ma- 
jority of  the  court  admit  them  to  be  susceptible  of  his 
construction.  But  Justice  Miller,  speaking  for  the  majority 
of  the  court,  after  reviewing  a  number  of  cases  on  the 

'  This  was  before  the  passage  of  the  Interstate  Act  of  Congress. 
»  Peik  vs.  Railroad  Co.,  94  U.  S.,  164. 


A   REGULATION  OF  COMMEPCE.  73 

subject,  said :  "  We  must,  therefore,  hold  that  it  is  not, 
and  never  has  been,  the  deliberate  opinion  of  a  majority 
of  this  court  that  a  statute  of  a  State,  which  attempts  to 
regulate  the  fares  and  charges  by  railroad  companies 
within  its  limits,  for  a  transportation  which  constitutes  a 
part  of  commerce  among  the  States,  is  a  valid  law.  .  .  . 
Of  the  justice  or  propriety  of  the  principle  which  lies  at 
the  foundation  of  this  statute,  it  is  not  the  province  of 
this  court  to  speak.  As  restricted  to  a  transportation 
which  begins  and  ends  within  the  limits  of  the  State,  it 
may  be  very  just  and  equitable,  and  it  certainly  is  the 
province  of  the  State  legislature  to  determine  that  ques- 
tion ;  but  when  it  is  attempted  to  apply  to  transportation 
through  an  entire  series  of  States  a  principle  of  this  kind, 
and  each  one  of  the  States  shall  attempt  to  establish  its 
own  rates  of  transportation,  its  own  methods  to  prevent 
discrimination  in  rates,  or  to  permit  it,  the  deleterious 
influence  upon  the  freedom  of  commerce  among  the 
States,  and  upon  the  transit  of  goods  through  those 
States,  cannot  be  overestimated.  That  this  species  of 
regulation  is  one  which  must  be,  if  estabhshed  at  all,  of  a 
general  and  national  character,  and  cannot  be  safely  and 
wisely  remitted  to  local  rules  and  regulations,  we  think  is 
clear  from  what  has  already  been  said.  And  if  it  be  a 
regulation  of  commerce,  as  we  think  we  have  demon- 
strated it  is,  and  as  the  Illinois  court  concedes  it  to  be,  it 
must  be  of  that  national  character ;  and  the  regulation 
can  only  appropriately  exist  by  general  rules  and  prin- 


74  PUBLIC  REGULATION  OF  RAILWAYS. 

ciples,  which  demand  that  it  should  be  done  by  the 
Congress  of  the  United  States,  under  the  commerce  clause 
of  the  Constitution." 

Inasmuch,  however,  as  interstate  commerce  is  carried 
on  principally  by  means  of  through-trafific  arrangements 
between  the  railroad  corporations  of  different  States,  the 
question  arises  whether  a  State  may  prevent  the  railroad 
companies  of  other  States  from  making  contracts  with  its 
own  corporations  for  the  mutual  interchange  of  traffic 
"among  the  States,"  or  may  impose  conditions  upon  such 
contracts  ;  or  whether,  on  the  other  hand.  Congress  can 
compel  railroad  corporations  of  different  States  to  make 
such  through-traffic  arrangements  with  each  other,  against 
the  expressed  policy  of  one  or  more  of  the  States. 

The  general  rule  as  to  the  power  of  the  States  in  respect 
to  corporations  of  other  States  is  that  ''  they  may  exclude 
the  foreign  corporation  entirely,  they  may  restrict  its 
business  to  particular  localities,  or  they  may  exact  such 
security  for  the  performance  of  its  contracts  with  its 
citizens  as  in  their  judgment  will  best  promote  the  public 
interests."  And  this  is  because  a  "  corporation,  being  the 
mere  creature  of  local  law,  can  have  no  legal  existence 
beyond  the  limits  of  the  sovereignty  where  created.  The 
recognition  of  its  existence,  even  by  other  States,  and  the 
enforcement  of  its  contracts  made  therein,  depend  purely 
upon  the  comity  of  those  States, — a  comity  which  is 
never  extended  where  the  existence  of  the  corporation, 
or  the  exercise  of  its  powers  are  prejudicial  to  their  inter- 


PARAMOUNT  RIGHT  OF  CONGRESS.  75 

ests  or  repugnant  to  their  policy."  '  The  terms  of  this 
rule  are  certainly  broad  enough  to  include  the  right  of  a 
State  to  exclude  railroad  companies  of  other  States  from 
doing  any  business,  or  making  any  contract  to  be  per- 
formed within  its  limits,  or  to  impose  on  such  contracts 
such  terms  and  conditions  as  it  may  deem  expedient. 

But  this  principle  was  announced  in  a  case  where  the 
particular  corporation  under  discussion  was  not  engaged 
in  commerce  among  the  States. 

And  it  has  since  been  decided  that  the  doctrine  laid 
down  in  that  case,  that  no  State  is  bound  to  recognize 
within  its  limits  the  contracts,  or  even  the  existence,  of  a 
foreign  corporation,  is  subordinate,  and  must  yield  to  the 
paramount  right  of  Congress  to  regulate  commerce  among 
the  States.  And  Congress  may  not  only  authorize  the 
admission  of  foreign  corporations  into  a  State,  for  the 
purpose  of  engaging  in  interstate  commerce,  against  the 
consent  of  the  State,^  but  the  States  cannot,  even  where 
Congress  has  not  acted,  exclude  foreign  corporations  from 
engaging  in  such  commerce  within  their  limits.' 

It  being  established  that  a  foreign  corporation  may  en- 
ter into  a  State,  for  the  purpose  of  engaging  therein  in 
commerce  among  the  States,  even  against  the  State's 
consent,  it  seems  to  follow  that  no  State  can  prevent  its 
own  railroad  corporations  from  entering  into  any  contract 

'  Paul  vs.  Virginia,  8  Wall,  181. 

"  Pensacola  Tel.  Co.  vs.  W.  U.  Tel.  Co.,  96  U.  S.,  i. 
'  Cooper  Mfg.  Co.  vs.  Ferguson,  113  U.  S.,  726  ;  Pickard  vs.  Car  Co., 
117  U.  S.,  p.  34. 


76  PUBLIC  REGULATION  OF  RAILWAYS. 

or  traffic  arrangement. /i2?r/;/  within  the  scope  of  its  powers, 
with  any  foreign  corporation,  for  the  purpose  of  engaging 
in  such  commerce. 

And,  for  the  same  reason,  Congress  may  compel  corpo- 
rations of  different  States,  engaged  in  interstate  commerce, 
to  make  such  traffic  arrangements  among  themselves  for 
carrj'ing  on  such  commerce  as  are  fairly  within  the  scope 
of  their  powers,  to  the  same  extent  that  it  can  compel 
natural  persons  so  engaged  to  do  so. 

But  whether  a  domestic  corporation  of  a  State  can  en- 
ter into  a  contract  clearly  ultra  vires,  and  beyond  the  scope 
of  its  powers,  with  a  foreign  corporation,  for  the  purpose 
of  enabling  the- latter  to  engage  in  interstate  commerce 
in  the  State  of  the  domestic  corporation,  is  a  more  diffi- 
cult question.  For  example,  a  railroad  corporation  cannot 
lease  or  alien  any  franchise,  or  any  property  necessarj^  to 
perform  its  duties  and  obligations  to  the  State  without 
legislative  authority  from  that  State.  Such  a  lease  would 
be  iiltra  vires  and  void.' 

The  same  is  true  of  a  consolidation  of  two  or  more 
railroad  companies  without  legislative  authority.^  And 
the  reason  for  this  "  is  that  where  a  corporation  like 
a  railroad  company  has  granted  to  it  a  charter,  intended 
in  large  measure  to  be  exercised  for  the  public  good,  the 
due  performance  of  those  functions  being  the  considera- 
tion of  the  public  grant,  any  contract  which  disables  the 

*  Thompson  vs.  Railroad  Co.,  loi  U.  S.,  71. 
'  Clearwater  vs.  Meredith,  i  Wall,  p,  39. 


VALIDITY   OF  RAILROAD  LEASES.  yy 

corporation  from  performing  those  functions,  which  un- 
dertakes without  the  consent  of  the  State  to  transfer  to 
others  the  rights  and  powers  conferred  by  the  charter, 
and  to  relieve  the  grantees  of  the  burden  which  it  im- 
poses, is  a  violation  of  the  contract  with  the  State,  and  is 
void  as  against  public  policy."  The  validity  of  railroad 
leases  and  consolidations  has  not  been  considered  by  the 
Supreme  Court  with  reference  to  the  effect  on  interstate 
commerce.  But  a  lease  or  consolidation,  being  a  total 
surrender  of  the  functions  of  the  corporation,  and  a  viola- 
tion of  its  contract  with  the  State,  is  a  very  different 
thing  from  a  mere  trafHc  contract  with  another  company, 
under  which  the  corporation  still  retains  the  power  to  dis- 
charge all  its  duties  and  all  the  public  objects  of  its  crea- 
tion. It  by  no  means  follows,  therefore,  even  if  a  State 
cannot  prevent  its  railroad  corporations  from  entering 
into  interstate  traffic  arrangements  with  railroad  compa- 
nies of  other  States,  that  leases  or  consolidations  of  its 
railroads  with  those  of  other  States,  or  those  chartered  by 
Congress,  are  valid  without  its  consent.  Congress  has,  it 
is  true,  authorized  the  consolidation  of  a  railroad  char- 
tered by  it,  with  a  road  chartered  by  a  State,  but  the 
constitutionality  of  the  act  has  been  questioned  by  the 
State  authorities,  and  has  not  been  passed  on  by  the 
Supreme  Court.' 

One  of  the  principal  evils  connected  with  the  railroad 

*  See  Ames  vs.  Kansas,  iii  U.  S.,  p.  449.  See  also  Pacific  R.  R.  Removal 
cases,  115  U,  S,,  p.  16. 


78  PUBLIC  REGULATION  OF  RAILWAYS. 

transportation  system  of  the  present  day,  is  the  excessively 
low  rates  on  competitive  traffic  as  compared  with  "  local " 
or  non-competitive  traffic. 

The  evil  here  alluded  to  does  not,  however,  seem  to 
have  been  apprehended  in  the  earlier  days  of  railroad 
construction  and  transportation,  and  it  is  only  in  recent 
years  that  public  attention  has  been  closely  attracted  to 
it. 

The  danger  formerly  apprehended  was  that  the  railroad 
companies,  being  chartered  by  the  States,  might  by  their 
charges  and  methods  of  management,  and  by  combina- 
tions to  prevent  competition  among  themselves,  impede 
the  free  interchange  of  commerce  among  the  States,  It 
was  apparently  conceded  without  question  that  the  rail- 
roads might  fix  their  own  rates,  even  on  interstate  trans- 
portation, subject  only  to  such  limitations  as  the  States 
which  chartered  them  might  impose.  And  the  idea  seems 
to  have  prevailed  that  the  means  of  preventing  or  remov- 
ing obstructions  to  commerce  arising  in  this  way,  would 
be  the  construction,  under  Federal  authority,  of  competing 
lines  of  interstate  commuincation.'  Within  the  last  dec- 
ade, public  attention  has  been  called  to  the  fact  that 
discrimination,  or  relative  extortion,  and  not  usually  ac- 
tual extortion,  is  the  crying  evil  of  railway  transportation. 
The  legislative  and  the  judicial  mind  of  the  country,  too, 
have  been  coming  to  the  conclusion  that  private  competi- 
tion cannot  be  relied  on  as  a  remedy  for  these  evils,  and 
'  See  Railroad  Co.  vs.  Maryland,  21  Wall,  473. 


POWER   OF  CONGRESS.  79 

that  governmental  regulation  of  railways  is  both  necessary 
and  admissible. 

The  belief,  too,  has  become  current,  and  has  finally 
resulted  in  legislation,  that  Congress  can  exercise  its  pow- 
ers of  regulating  interstate  commerce,  upon  the  various 
State  agencies  engaged  therein,  without  resorting  to  the 
doubtful  and,  for  the  most  part,  untried  expedient  of 
constructing  competing  lines  under  Federal  authority. 
The  power  of  Congress  in  the  regulation  of  commerce 
among  the  States  carried  on  by  railroads  has  not  yet  been 
judicially  defined  with  any  degree  of  accuracy.  But  that 
railroads,  within  proper  limits,  are  subject  to  that  power, 
admits  of  no  doubt.'  In  considering  the  powers  of  the 
Federal  legislature  over  the  prices  and  the  modes  of  inter- 
state commerce  by  railroad,  and  in  the  regulation  of  such 
commerce  generally,  it  will  aid  in  simpHfying  the  discus- 
sion to  bear  in  mind  separately  the  respective  functions 
of  the  carrier  on  the  road,  and  those  of  the  road  itself,  as  a 
public  highway  for  commerce. 

The  carrier,  whether  an  individual  or  a  corporation, 
whether  by  rail  or  turnpike,  who  holds  himself  out  as 
such,  is  bound  by  the  nature  of  his  business  to  carry  all 
classes  of  property  which  he  assumes  to  carry,  for  all  per- 
sons, without  distinction  or  discrimination,  regardless  of 
the  original  starting-point  or  ultimate  destination  of  the 
shipment.  He  is  as  much  bound  to  carry  persons  or 
property  whose  transit  begins  in  one  State  and  is  destined 
'  See  Wabash,  etc. ,  R.  R.  Co.  vs.  Illinois,  ante. 


8o  PUBLIC  REGULATION   OF  RAILWAYS. 

to  end  in  another,  as  he  is  to  carry  those  whose  transit 
begins  and  ends  in  the  same  State.  In  assuming  these 
obHgations,  the  carrier  does  so — in  legal  contemplation  at 
least — with  knowledge  of  the  public  supervision  and  con- 
trol which  may  be  exercised  over  his  business.  This  con- 
trol proceeds  from  State  authority  or  from  Federal 
authority,  according  as  the  property  transported  belongs 
to  domestic  commerce  or  to  interstate  commerce.  In  un- 
dertaking voluntarily  the  business  of  a  common  carrier, 
and  as  such  transporting  persons  and  property  en  route 
from  State  to  State,  he  by  his  own  act  submits  himself  to 
the  regulative  powers  of  Congress  over  commerce  among 
the  States.  The  powers  of  Congress  over  the  railroad 
itself  as  a  public  highway  are  also  derived  from  the  fact 
that  the  road  is  an  instrumentality  of  commerce  among 
the  States  or  with  foreign  nations,  and  such  it  must  neces- 
sarily be  to  justify  the  exercise  of  Federal  control  over  it. 
But  where  a  railroad  is  built  between  such  points  as  to 
manifest  the  intention  of  its  owners,  and  of  the  State 
which  authorizes  its  construction,  to  devote  it  to  the 
transportation  of  commerce  over  which  Congress  has  con- 
trol, the  intention  to  submit  the  road  itself  to  the  regula- 
tion of  Congress,  in  respect  of  such  commerce,  is  neces- 
sarily to  be  inferred.  And  Congress  may,  if  it  sees  fit, 
impose  regulations  as  to  the  mode  of  use  of  the  road  in 
carrying  interstate  trafific,  which  are  repugnant  to  special 
and  exclusive  privileges  that  may  have  been  conferred  on 
its  owners  by  the  State.    For  the  State  cannot  grant  special 


A    PUBLIC  AGENCY.  8 1 

privileges,  except  as  to  matters  within  its  own  power  and 
control. 

If  it  be  objected  that  the  road  itself  is  a  public  agency 
created  by  the  State — a  State  highway, — and  therefore 
cannot  be  interfered  with  by  Congress,  the  premises  may 
be  admitted,  but  the  conclusion  must  be  denied.  The 
road  is  indeed  a  pubhc  agency,  established  by  the  State 
for  the  purpose  of  engaging  in  commerce  ;  but  the  com- 
merce is  both  domestic  and  interstate  in  its  character — 
the  one  being  subject  to  State,  the  other  to  Federal  reg- 
ulation. And  analogous  examples  are  at  hand  where  a 
State  agency,  exercising,  under  State  authority,  functions 
which  are  partially  subject  to  Federal  control,  has  actually 
been  subjected  to  Federal  regulation.  Thus  it  frequently 
happens  that  elections  for  members  of  Congress  and  for 
State  officers  are  held  at  the  same  time  and  place,  and 
are  presided  over  by  State  officers  of  election.  The  Con- 
stitution gives  Congress  the  power  to  alter  regulations 
which  may  be  prescribed  by  any  State  as  to  the  time, 
place,  and  manner  of  electing  representatives  to  Congress. 
In  pursuance  of  this  power  Congress  has  provided  that 
any  officer  of  an  election  at  which  a  representative  in 
Congress  is  voted  for,  whether  such  officer  be  acting  under 
State  or  Federal  authority,  who  neglects  or  refuses  to  per- 
form any  duty  required  of  him  in  respect  to  such  election, 
by  any  law  of  the  United  States,  shall  be  liable  to  pre- 
scribed penalties.  This  is  clearly  a  case  of  Federal  regu- 
lation of  an  agency  created  by  a  State  for  the  discharge 


82  PUBLIC  REGULATION  OF  RAILWAYS. 

of  duties,  some  of  which  are  subject  to  State  supervision 
alone,  and  others  to  Federal  supervision  and  control. 
And  this  legislation  of  Congress  has  been  held  to  be  valid 
and  constitutional  by  the  Supreme  Court  of  the  United 
States.*  The  authority  of  Congress  over  State  officers 
presiding  over  congressional  elections  is  derived  from  the 
constitutional  grant  of  power  to  regulate  the  manner  of 
holding  such  elections.  Its  power  to  regulate  railroads 
built  under  State  authority,  over  which  interstate  com- 
merce is  carried  on,  is  as  clearly  inferrible  from  the  con- 
stitutional grant  of  power  to  regulate  such  commerce.  In 
neither  case  can  the  Federal  power  of  regulation  be  car- 
ried so  far  as  to  impair  substantially  the  domestic  func- 
tions, peculiarly  under  the  control  of  the  State  itself, 
which  the  State  agency  was  intended  to  perform. 

In  both  cases  it  may  be  exercised  in  whatever  manner 
may  be  "  necessary  and  proper,"  or  "  appropriate  and 
plainly  adapted,"  for  the  execution  of  the  powers  ex- 
pressly conferred  on  Congress  by  the  Constitution.  A 
railway  commission  appears  to  be  as  "  appropriate  and 
plainly  adapted  "  to  the  execution  of  the  commercial 
power,  as  a  National  Bank  of  circulation  was  held  to  be, 
for  the  execution  of  other  powers  expressly  conferred  on 
Congress."  The  consideration  of  railroads  and  railroad 
companies  as  State  agencies  for  the  performance  of  a 
proper  function  of  the  State — that  is,  furnishing  highways 

'  Ex  parte  Siebold,  lOO  U.  S.,  p.  371. 
'  McCulloch  vs.  Maryland,  4  Wheaton,  316. 


CONGRESS  AND  THE   STATES.  83 

for  transportation — suggests  one  of  the  limitations  of 
Federal  control  over  the  railroad  system.  Not  only  is 
Congress  without  authority  to  interfere  directly  with  the 
domestic  commerce  of  a  State  ;  but  it  cannot,  it  would 
seem,  rightfully  exercise  any  control  over  the  railroads,  or 
the  companies  which  operate  them,  which  will  indirectly 
impair  their  responsibility  to  the  State,  or  their  capacity 
to  discharge  those  domestic  duties  whose  due  perform- 
ance was  the  consideration  of  their  charters.  For  this 
reason  it  has  been  above  suggested  that  Congress  cannot 
authorize  the  consolidation  or  leasing  of  railroads  built 
under  State  authority.  It  must  be  borne  in  mind  that 
railroads  are  public  highways,  and  though  built  by  private 
parties,  "  the  function  performed  is  that  of  the  State."  ' 
And  so  far  as  commerce  confined  within  the  State  is  con- 
cerned, it  is  a  function  necessary  to  its  welfare  and  beyond 
the  control  of  any  extraneous  authority.  "  The  Federal 
Constitution  ought  not  to  be  so  construed  as  to  impair, 
much  less  destroy,  any  thing  that  is  essential  to  the  effi- 
cient existence  "  of  the  State." 

It  is  true  that  the  power  of  Congress  has  been  judi- 
cially sustained,  to  tax  out  of  existence  Banks  of  Circula- 
tion chartered  by  the  States,'  although  two  judges  dis- 
sented on  the  ground  that  the  banks  were  public  agencies 
of  the  States.  But  the  decision  in  the  case  was  put  upon 
the  ground  that  Congress  had  exclusive  power  over  the 

'  Olcott  vs.  Supervisors,  ante. 

'  Case  of  State  tax  on  railroad  gross  receipts,  15  Wall,  284. 

'  Veazie  Bank  vs.  Fenno,  8  Wall,  533. 


84  PUBLIC  REGULATION  OF  RAILWAYS. 

currency  of  the  whole  country ;  and  this  is  a  very  differ- 
ent thing  from  its  commercial  power,  which  is  limited  to 
commerce  among  the  States,  etc.,  and  cannot  affect  com- 
merce witJiin  a  State.  Over  the  latter,  and  the  agencies 
created  to  carry  it  on,  the  powers  of  the  State  are  as 
exclusive  as  those  of  Congress  over  interstate  commerce. 

And  if  Congress  cannot  authorize  consolidations  and 
leases  of  State  railroads,  neither  can  it  prevent  them. 
The  ownership  and  title  to  property  within  the  limits  of 
a  State  is  not  a  matter  for  Federal  interference.  Con- 
gress may  regulate  the  price  of  the  use,  and  the  mode  of 
use,  and  contracts  in  relation  to  the  use  of  railroads,  so 
far  as  they  directly  affect  commerce  among  the  States. 
Thus  Congress  may  properly  prohibit  pooling  contracts, 
which  provide  for  a  division  of  the  trafific  itself  among  dif- 
erent  roads.     Such  a  contract  directly  affects  commerce. 

But  whether  Congress  can  prohibit  contracts  which 
provide  merely  for  a  division  of  earnings  among  railroad 
companies  has  been  questioned.  On  the  one  hand,  it  may 
be  said  that  such  contracts  are  made  to  prevent  compe- 
tition among  the  companies,  in  the  transportation  of 
traffic  among  the  States,  and  that  they  are  therefore 
obstructions  to  commerce  among  the  States  which  Con- 
gress may  constitutionally  forbid.  On  the  other  hand,  it 
has  been  decided  that  although  a  tax  imposed  by  a  State 
on  the  transportation  of  interstate  traffic  by  railroad  is 
void,  as  being  a  regulation  of  interstate  commerce,'  yet  a 
'  Case  of  State  freight  tax,  15  Wall,  232. 


EARNINGS  OF  RAILROADS.  85 

State  tax  on  the  earnings  of  a  railroad  derived  from  such 
traffic  is  not  a  regulation  of  commerce,  and  is  valid.' 

If,  then,  a  State  can  validly  interfere  with  the  earnings 
of  a  railroad  from  interstate  traffic,  because  such  interfer- 
ence is  7iot  a  regulation  of  commerce  among  the  States, 
it  is  difficult  to  see  how  the  interference  of  Congress  with 
the  disposition  the  companies  choos-e  to  make  of  their 
earnings  can  be  sustained  on  the  ground  that  it  is  a 
regulation  of  commerce  among  the  States.  The  author- 
ity of  the  case  last  referred  to  has,  however,  been  greatly 
weakened  by  a  more  recent  decision,^  and  it  can  scarcely 
be  doubted  that  the  power  of  Congress  to  prohibit  a 
division  of  earnings,  or  a  "  money  pool  "  in  interstate 
traffic,  would  at  this  day  be  judicially  sustained. 

The  query  has  also  been  made  whether  Congress  has 
power  to  sanction  or  legalize  the  general  principle  of 
pooling  among  railroads  engaged  in  commerce  among  the 
States,  or  to  legalize  agreements  between  different  com- 
panies to  maintain  rates  on  competitive  interstate  traffic. 

Conceding  that  Congress  may  in  proper  cases  regulate 
contracts  between  carrier  and  shipper,  which  are  a  neces- 
sary part  of  commerce  itself,  it  is  nevertheless  suggested 
that  pooling  agreements  are  entirely  different  from  the 
latter  class  of  contracts  ;  that  they  are  not  any  part  of 
commerce,  and  that  therefore  Congress  cannot  prohibit 
them,  or  legalize  them,  or  otherwise  regulate  them.     On 

'  Case  of  tax  on  railroad  receipts.     Id.,  284. 
'  P.  &  S.  Steamship  Co.  vs.  Pennsylvania,  122  U.  S.,  326. 


86  PUBLIC  REGULATION  OF  RAILWAYS. 

the  other  hand,  many  persons  are  of  opinion  that  these 
pooling  agreements,  under  proper  restrictions,  are  benefi- 
cial to  commerce,  in  preventing  unjust  discriminations, 
and  instability  and  fluctuations  in  the  charges  of  railroad 
companies ;  and  it  is  unquestionable  that  they  have 
exercised  a  very  decided  influence  upon  commerce  by 
rail.  Their  legalization  and  regulation,  as  well  as  their 
prohibition,  as  applied  to  interstate  commerce,  seems  to 
be  clearly  within  the  authority  of  Congress.  But  what- 
ever may  be  the  power  of  Congress  over  pooling  agree- 
ments, the  futility  of  prohibiting  pooling  by  act  of  Con- 
gress is  plain,  wherever  the  States  think  proper  to  permit 
consolidations  of  competing  lines. 

The  national  government,  as  well  as  the  several  States, 
is  also  limited  in  its  control  and  regulation  of  railways,  by 
the  consideration  of  the  private-property  rights  of  their 
owners.  "  The  United  States  cannot,  any  more  than  a 
State,  interfere  with  private  rights,  except  for  legitimate 
governmental  purposes.  They  are  not  included  within  the 
constitutional  prohibition  which  prevents  the  State  from 
passing  laws  impairing  the  obligation  of  contracts,  but 
equally  with  the  States  they  are  prohibited  from  depriv- 
ing persons  or  corporations  of  property  without  due  pro- 
cess of  law."  '  The  limitations  upon  legislative  power 
growing  out  of  these  considerations  have  already  been 
examined.  The  exclusive  powers  of  the  States  over 
their  domestic  commerce,  and  of  Congress  over  interstate 

'  See  Sinking  Fund  cases,  99  U.  S.,    718. 


APPEAL  TO  FEDERAL   COURTS.  8/ 

commerce,  and  the  fact  that  the  revenues  of  the  railways 
are  derived  from  both  these  sources,  makes  the  proper 
application  of  this  limitation  very  difificult,  unless  there 
shall  be  harmonious  action  on  the  subject  between  the 
Federal  and  State  authorities. 

One  of  the  most  important  considerations  involved  in 
the  question  of  the  reasonableness  of  railroad  charges,  is 
that  of  the  earnings  of  the  companies.  Many  companies 
operate  lines  extending  through  several  States.  In  each 
of  these  States  they  do  a  large  business  which  is  entirely 
confined  within  State  limits  ;  and  they  also  do  a  large  inter- 
state business.  The  earnings,  of  course,  are  derived  from 
the  aggregate  of  the  trafific  within  each  State  and  between 
the  States.  Each  sovereignty  has  regulative  powers  within 
its  sphere,  but  the  justice  or  expediency  of  the  regulation 
may  depend  upon  conditions  which  are  under  the  control 
of  a  different  sovereignty,  and  some  concert  of  action  be- 
tween them  would  appear  to  be  essential  to  success.  The 
laws  of  one  State,  limiting  railroad  charges  within  its  juris- 
diction, may  possibly  operate  indirectly  to  make  charges 
on  the  same  road  higher  in  other  States,  or  on  interstate 
traffic.  A  company  may  endeavor  to  compensate  for  a 
diminution  of  revenues  sustained  by  the  legislation  of 
one  State,  by  increased  charges  on  traffic  over  which  that 
State  has  no  control.  Under  these  circumstances,  ques- 
tions of  great  delicacy  may  be  presented,  for  whose  final 
solution  the  Federal  courts  must  be  appealed  to. 

There  is  at  least  one  important  limitation  on  the  power 


88  PUBLIC  REGULATION  OF  RAILWAYS. 

of  a  State  over  its  railroad  corporations  in  their  domestic 
commerce,  which  does  not  apply  to  the  powers  of  Con- 
gress over  them  in  their  interstate  commerce.  This  is  the 
limitation  which  is  frequently  imposed  by  a  contract 
between  a  State  and  a  railroad  company  contained  in 
its  charter.  These  contracts  usually  relate  to  the  rates 
which  the  companies  may  charge,  and  to  the  exclusive 
right  of  transportation  over  their  roads ;  although  they 
may  of  course  relate  to  other  subjects.  But  the  State 
cannot  surrender  or  relinquish  by  contract  any  rights  but 
its  own,  or  confer  any  greater  powers  than  itself  possesses. 
And  Congress  is  therefore  not  at  all  hindered  by  any  State 
charter  from  reducing  or  fixing  railroad  charges  on  inter- 
state traffic  below  the  tariff  of  charges  authorized  by  the 
State,  even  though  the  latter  has  pledged  itself  not  to 
reduce  the  tariffs.  Nor,  it  would  seem,  can  a  railroad 
company  claim  the  exclusive  right  of  transporting  inter- 
state traffic  over  its  road, — although  by  its  charter  from 
the  State  it  enjoys  that  exclusive  right, — where  Congress 
prescribes  a  different  mode  of  use.  This  would  not  be  a 
requirement  which,  if  reasonably  applied  (for  instance,  to 
compel  a  free  interchange  of  traffic),  would  impair  the 
authority  of  the  State  over  its  railroads,  or  the  capacity 
of  the  latter  for  the  transportation  of  commerce  within 
the  State. 


THE  ECONOMIC   ASPECTS  OF  THE 
QUESTION. 


CHAPTER  V. 

Extortion — Discriminations  of  Various  Kinds — Relations  of  Rail- 
roads to  Each  Other  and  to  Water  Routes — Results  thereof 
— Competition  and  Monopoly — Relative  Charges  for  Lofig 
and  Short  Distatices — Illustrations  and  Effects  thereof — 
Discussio?i  of  the  Lo?tg-  and  Short-Haul  Question —  Under 
What  Circumstances  and  Conditions  a  Greater  Charge  for  a 
Shorter  Haul  Justifiable — Illustrations  and  Analogies. 

Having  examined  somewhat  in  detail  the  authority  of 
the  legislatures,  both  State  and  National,  over  railroad 
transportation,  as  well  as  the  constitutional  limitations 
upon  legislative  powers,  it  is  proper  to  give  some  account 
of  certain  railroad  methods  and  practices  against  which 
legislation  has  been  invoked.  No  extended  discussion  of 
the  subject,  however,  will  be  entered  upon,  but  only  a 
few  illustrations  given  from  the  voluminous  testimony 
which  has  been  adduced  concerning  it.  And  here  it  is  to 
be  observed  that  the  leading  object  had  in  view  in  fixing 
railway  charges,  is  always  to  produce  the  largest  net 
earnings  from  the  operation  of  the  road.  This  is  an 
irresistible  deduction  from  the  first  principles  of  human 


90  PUBLIC  REGULATION  OF  RAILWAYS. 

nature.  All  men  will  naturally  seek  to  make  the  most  of 
their  own,  and  should  proprietary  rights  in  this  respect 
conflict  with  public  rights,  the  former  will  surely  have  the 
preference  at  the  hands  of  the  management.  And  yet 
these  charges  are  perhaps  in  no  case  of  that  entirely 
arbitrary  character  which  has  sometimes  been  predicated 
of  them.  They  are  in  the  first  place  limited  by  the 
general  doctrine  of  the  common  law,  that  they  must  be 
reasonable ;  though  the  difficulties  to  be  encountered  in 
seeking  relief  from  real  or  supposed  extortion  under  this 
general  principle  are  so  great  as  to  make  it  of  little  value. 
The  direct  limitation  imposed  by  the  existence  of  compe- 
tition is  frequent  and  striking,  but  it  is  by  no  means 
sufficiently  pervasive  to  make  its  influence  of  universal 
benefit ;  and  indeed  it  has  sometimes  operated  to  produce 
any  thing  but  beneficial  results.  In  the  third  place,  where 
neither  the  reasonableness  of  the  charge,  from  the  shipper's 
standpoint,  nor  the  necessity  of  meeting  competition, 
affects  the  action  of  the  railway  management  in  fixing 
rates,  there  are  other  considerations  which  will  always 
exert  an  influence  (though  sometimes  an  inadequate  one) 
to  modify  the  purely  arbitary  character  of  charges.  These 
considerations,  when  duly  weighed  and  given  their  proper 
influence  by  a  management  seeking  merely  to  increase 
net  revenues,  operate  to  place  the  rate  on  any  given  com- 
modity at  such  a  figure  as  that  the  product  of  the  rate 
and  the  quantity  of  the  shipment,  minus  the  expense  of 
the  carriage,  will  be  a  maximum. 


REDUCTION  OF  RATES.  9 1 

Low  rates  of  transportation  stimulate  production  and 
increase  shipments,  and  there  must  evidently  be  some 
point  between  an  excessively  high  and  an  excessively  low 
charge,  where  the  product  of  the  rate  and  the  volume  of 
tralTfic  will  be  a  maximum.  This  point  in  practice  can, 
of  course,  only  be  approximately  ascertained,  and  that 
only  by  experiment.  Up  to  that  point  decrease  of  rates 
increases  gross  earnings  ;  while  the  increase  of  operating 
expenses  is  by  no  means  in  proportion  to  increase  of 
trafific.  Hence  mere  considerations  of  profit  to  the  com- 
pany may  undoubtedly  influence  a  wise  management  to 
reduce  rates  at  non-competitive  points.  But  this  effect 
of  lowering  railway  charges  does  not  always  seem  to  be 
clearly  apprehended  by  those  having  control  of  such 
matters ;  and  after  all,  as  the  underlying  principle  of  this 
last  limitation  is  a  purely  selfish  one  with  the  railway,  and 
intended  only  to  increase  its  revenues,  it  must  be  con- 
ceded that  charges,  unless  influenced  by  competition,  are 
to  a  very  large  extent  arbitrary.  Such  at  all  events  they 
are  wellnigh  universally  believed  to  be — the  shipper 
having  no  immediate  voice  in  fixing  them, — and  from  this 
belief  great  dissatisfaction  with  railway  methods,  more  or 
less  well  founded,  has  arisen. 

Charges  of  injustice  in  the  operation  of  railways  relate 
chiefly  to  extortion  and  unjust  discrimination.  It  has 
already  been  suggested  that  extortion  in  a  general  sense, 
as  distinguished  from  discrimination,  may  be  defined  as 
imposing  on  the  public  such  classifications  and  schedules 


92  PUBLIC  REGULATION  OF  RAILWAYS. 

of  rates  as  will  in  the  aggregate  swell  the  net  earnings  of 
the  road  beyond  a  reasonable  compensation  on  the  just 
value  of  the  property. 

What  the  just  value  of  railroad  property  is,  is  not 
always  by  any  means  an  easy  matter  to  determine.  It  is 
not  necessarily  what  similar  property  could  be  built  or 
bought  for  at  the  time  of  the  valuation.  To  estimate  it 
on  that  consideration  alone  would  frequently  do  gross 
injustice  to  security  holders.  The  prices  of  labor  and 
material  may  have  fallen  greatly  between  the  time  of 
construction  and  the  time  of  valuation,  and  to  throw  the 
whole  loss  thus  sustained  on  security  holders  would  be 
manifestly  unjust.  Still  this  consideration  should  cer- 
tainly enter  into  the  estimate  of  just  value.  Other 
elements  of  course  enter  into  the  estimate,  such  as  the 
actual  bona  fide  original  cost,  the  amount  of  "  water  "  in 
securities,  etc'  No  satisfactory  basis  for  determining 
the  just  value  of  railroad  property,  especially  when  the 
franchises  are  considered,  has  been,  or  in  the  nature  of 
things  probably  can  be,  established.  From  the  purely 
proprietary  standpoint  the  value  should  be  estimated  only 
by  earning  capacity.  Even  this  is  largely  dependent  upon 
changing  circumstances,  such  as  crop  prospects,  or  the 
volume  of  traffic  as  affected  by  the  general  financial  con- 
dition of  the  country,  and  to  an  even  greater  extent  per- 

'  For  views  of  this  question  from  very  different  standpoints  see  testimony 
of  Fink  and  Thurber  before  Senate  Committee  on  Labor  and  Capital,  vol. 
ii.,  pp.  463  to  522,  and  743  to  784. 


COMP,UTATION  OF  VALUE.  93 

haps  upon  the  personal  characteristics  of  the  managing 
officials.  The  policy  pursued  by  a  directory — whether 
conservative  and  economical,  or  aggressive  and  daring — is 
a  great  factor  in  the  determination  of  the  current  value  of 
the  property.  Various  methods  of  approximating  the 
value  have  been  suggested.  One  is  by  averaging  the  net 
earnings  for  a  series  of  years,  and  computing  the  amount 
of  capital  required  to  produce  annually  the  amount  of  the 
average  annual  net  earnings  at  a  fair  rate  of  interest ; 
another  is  to  ascertain  the  value  of  the  entire  bonded 
debt  and  stock  of  the  company,  at  the  ruling  market 
prices  ;  and  a  third  is  that  by  appraisement.  The  method 
of  valuation  by  appraisement  must  usually  be  the  merest 
guesswork,  unless  the  appraisement  is  to  some  extent 
based  upon  the  other  methods  suggested,  i.  e.,  the 
average  net  earnings  and  the  market  value  of  securities. 
But  to  adopt  them  as  a  basis  of  value  seems  to  be  a  con- 
cession of  the  claim  that  the  value  is  limited  only  by 
earning  capacity — a  claim  that  may  sometimes  be  highly 
prejudicial  to  the  public  welfare.'  How  far  the  com- 
panies are  entitled  to  the  "  unearned  increment  "  of  value 
arising  from  the  general  increase  in  the  wealth  and  popu- 
lation of  the  country,  is  a  very  difficult  question.  Many 
thousands  of  miles  of  railway  have  been  built  into  the 
wilderness,  without  any  hope  or  prospect  of  immediate 

'  For  discussions  of  this  question  of  the  value  of  railway  property,  see 
Third  Semi-annual  Report  of  Railway  Commission  of  Georgia,  p.  37, 
Report  of  Interstate  Commerce  Committee,  1S88,  p.  64;  and  li.Ji.  Gazette, 
1888,  p.  743. 


94  PUBLIC  REGULATION  OF  RAILWAYS. 

return  upon  investment.  The  future  development  of  the 
country,  which  the  railroad  must  itself  create,  can  alone 
bring  profit  to  the  enterprise.  Of  the  fruits  of  such  develop- 
ment, those  whose  sagacity  and  whose  capital  have  largely 
contributed  to  produce  it,  are  surely  entitled  to  a  liberal 
share.  Even  in  populous  commercial  communities,  where 
railroad  earnings  are  from  the  start  reasonably  remuner- 
ative, the  existence  of  the  railway  is  frequently  a  prime 
cause  of  further  commercial  development  and  increase  of 
wealth.  To  deny  to  the  railway  companies  any  share  in  this 
increase,  would  seem  to  savor  strongly  of  the  doctrines  of 
Henry  George.  Yet  this  is  what  many  persons  seem  to 
think  should  be  done.  On  the  other  hand,  to  permit 
them  to  appropriate  to  themselves  in  the  shape  of  earn- 
ings the  utmost  amount  an  enormous  traffic  will  yield,  is 
to  overlook  the  fact  that  railroads  are  public  highways." 
The  general  public  are  entitled  to  share  the  benefits  in 
the  shape  of  reduced  transportation  charges.  No  less  an 
authority  than  Mr.  Charles  F.  Adams,  Jr.,  has  asserted 
that  a  railroad  company  should  not  even  apply  its  earn- 
ings to  new  construction,  but  that  fresh  capital  should  be 
invested  for  that  purpose  ;  and  where  the  earnings  more 
than  suffice  to  pay  operating  expenses,  debts,  and  reason- 
able dividends  on  stock,  rates  should  be  reduced  and  the 
public  relieved  of  its  burdens.^ 

'  For  Mr.  Jay  Gould's  views,  see  vol.  i.   of  testimony  before  Senate  Com- 
mittee on  Labor  and  Capital,  p.  1074. 

^  Report  Mass.  R.  R.  Commission,  1875,  pp.  12,  13. 


APPLICATION  OF  EARNINGS.  95 

There  are  instances  where  earnings  have  been  applied 
to  new  construction,  and  additional  stock  issued  to  repre- 
sent it ;  and  there  are  others  where,  though  earnings  have 
been  appHed  to  new  construction,  no  new  stock  was  issued 
therefor. 

But  modern  railroad  enterprises  are  usually  sufficiently 
capitalized  in  their  inception  to  render  future  stock  water- 
ing unnecessary,  and  the  application  of  earnings  to  new 
construction  impossible.  It  is  generally  believed,  and  is 
perhaps  in  large  measure  true,  that  railroads  nowadays  are 
built  entirely  with  the  proceeds  of  mortgage  bonds — not 
infrequently  sold  at  a  heavy  discount, — and  that  the  capi- 
tal stock  does  not  really  represent  money  paid  towards 
the  construction  of  the  work.  It  is  notorious,  too,  that 
where  railway  property  is  bought  in  at  foreclosure  sales, 
the  amount  of  stock  and  bonds  issued  against  the  prop- 
erty by  the  purchasers  is  vastly  in  excess  of  the  purchase 
price.  It  does  not  necessarily  follow  that  the  new  capi- 
talization is  in  excess  of  the  just  value  of  the  property; 
though  perhaps  in  most  cases  it  is  so.  Nor  is  it  likely 
that  excessive  capitalization  increases  transportation  rates, 
for  these  are,  under  all  circumstances,  adjusted  with  the 
view  of  securing  the  largest  amount  of  net  earnings. 

But  it  is  highly  probable  that  the  effort  to  pay  interest 
and  dividends  on  an  excessive  capitalization  frequently 
causes  a  diversion  of  earnings  from  the  proper  mainte- 
nance and  repairs  of  works  and  property,  and  is  respon- 
sible  for   many   calamitous  railroad  accidents.     Without 


96  PUBLIC  REGULATION  OF  RAILWAYS. 

undertaking  to  say  how  the  just  value  of  railroad  property 
should  be  ascertained — except  that  a  liberal  estimate 
should  be  made  in  favor  of  the  owners  of  the  property, — 
it  still  sufficiently  appears  that  it  may  be  a  very  diiTerent 
thing  from  the  capitalized  value.  And  the  discussion,  in 
previous  chapters,  of  the  legal  relations  between  the  rail- 
ways and  the  public,  clearly  shows  that  the  determination 
of  the  just  value  and  reasonable  net  earnings  of  railway 
property  belongs  to  the  public;  just  as  the  valuation  of 
lands,  or  other  private  property  to  be  taken  for  public  use, 
is  made  by  public  assessors.  The  valuation  must,  of 
course,  be  made  "  by  due  process  of  law,"  and,  as  has  al- 
ready been  shown,  must  ultimately  be  judicially  ascer- 
tained, in  case  of  disagreement  between  the  owners  and 
the  representatives  of  the  public. 

The  earning  capacity  of  different  roads,  and  the  average 
charges  necessary  to  be  imposed  upon  the  public  in  order 
to  earn  a  reasonable  net  return  on  the  just  value  of  the 
property,  varies  very  greatly.  Yet  there  is  a  singularly 
strong  propensity  in  people — even  intelligent  people — to 
overlook  this  very  evident  truth,  and  to  set  up  as  a 
standard  of  reasonable  charges  upon  one  line,  those  for 
similar  services  upon  another,  whose  traffic  conditions 
may  be  totally  different.  This  propensity  is  indeed  but 
part  of  a  larger  fact,  which  constitutes  one  of  the  chief 
perplexities  in  dealing  with  complaints  against  railroad 
companies.  This  is  that  the  public  is  apt  to  regard  the 
entire  railroad  system  of  the  country  as  a  unit  in  respect 


INCONSISTENT  DEMANDS.  97 

of  the  capacity  and  responsibility  of  the  many  different 
roads  composing  it.  Such  an  idea  is,  of  course,  entirely 
fallacious.  It  is  safe  to  say,  perhaps  (though  there  arc 
certainly  exceptions  to  the  assertion),  that  most  railroad 
companies,  whatsoever  the  wishes  or  the  efforts  of  the 
management  may  be,  do  not  make  on  the  entire  operation 
of  their  property  an  excessive  net  return  upon  its  just 
value.  Very  inconsistent  demands  are  often  made  upon 
railway  managements, — for  the  lowest  trafific  charges  on 
the  one  hand,  and  on  the  other  for  the  highest  efficiency 
in  the  public  service,  and  the  most  approved  appliances 
for  speed,  comfort,  and  safety.  Enforced  diminution  of 
revenues  is  very  apt  to  result  in  decreased  efficiency 
of  service,  and  probably  in  impairment  of  the  safety  and 
general  condition  of  the  property. 

The  number  of  trains  per  day  may  be  reduced,  and 
travel  greatly  inconvenienced.  Scarcity  of  funds  may  be 
alleged  as  a  reason  for  not  introducing  new  inventions  for 
the  promotion  of  safety.  Possibly  bridges  and  other 
structures  will  not  receive  the  attention  which  the  safety 
and  accommodation  of  traffic  and  travel  demand.  Where 
the  companies  do  their  full  duty  to  the  public  in  maintain- 
ing their  facilities  and  property  in  the  highest  possible 
condition  of  efficiency,  their  net  earnings  will  not  usually 
be  in  excess  of  what  they  are  entitled  to.  This  being  the 
case,  the  question  of  what  rate  on  any  particular  com- 
modity or  charge  for  any  particular  service  is  extortionate, 
or  what  is  reasonable,  must  evidently  be  a  relative  one. 


98  PUBLIC  REGULATION   OF  RAILWAYS. 

It  would  manifestly  be  impossible  to  predicate  of  the 
charge  for  any  particular  service  that  it  is  unreasonable  or 
the  reverse,  without  a  close  examination  of  the  entire 
trafific  and  field  of  operations  of  the  road.  It  would  be 
necessary  to  consider  not  only  the  value  of  the  property 
and  its  physical  characteristics,  but  the  quantity  and  the 
different  kinds  of  trafific  transported  by  it,  its  situation 
with  reference  to  competitive  routes,  both  generally  and 
at  special  points,  and  in  general  all  the  complicated  con- 
ditions which  influence  railroad  rate-makers  in  fixing 
charges. 

The  principal  problem  to  solve  seems  to  be  how  to  fix 
charges  to  produce  a  fair  income,  without  unjustly  dis- 
criminating between  places,  persons,  and  kinds  of  trafific  ; 
to  so  adjust  rates  as  to  impose  as  equitably  as  possible 
upon  various  interests  and  various  localities  and  various 
shippers,  the  burden  of  the  necessary  aggregate  of  charges 
to  cover  all  expenses.  The  best  efforts  have  not  entirely 
succeeded  in  the  accomplishment  of  this  difficult  task. 
Discrimination,  therefore,  is  a  much  more  prolific  source 
of  complaint  than  actual  extortion,  especially  in  the 
transportation  of  freights.  And  as  the  passenger  traffic 
is  comparatively  of  minor  importance,  and  less  the  subject 
of  complaint,  the  following  illustrations  and  observations 
will  be  confined  principally  to  freight  transportation. 

Discriminations  may  be  against  or  in  favor  of  particular 
species  of  traffic  or  commodities,  against  or  in  favor  of 
particular  individuals,  or  against  or   in    favor  of  certain 


TRUNK  LINES.  99 

localities.  To  understand,  in  the  first  place,  how  these 
discriminations  come  to  exist,  and  in  the  second  place,  to 
understand  how  far  they  constitute  real  evils,  and  how  far 
imaginary  evils  only, — and  if  real,  how  far  they  are  attrib- 
utable to  the  intentional  policy  of  the  railroads,  and  how 
far  to  circumstances  beyond  their  control  or  that  of  legis- 
lation,— the  geography  of  the  railroad  system  must  be 
studied  :  that  is,  the  extent  of  the  various  lines  of  railway, 
and  their  location  with  reference  to  one  another  and  to 
water  routes,  as  well  as  to  points  of  production,  manufac- 
ture, exportation,  and  consumption.  A  comprehensive 
examination  of  the  geography  of  the  whole  railroad  sys- 
tem of  the  United  States  would  of  course  be  impractica- 
ble here.  But  there  are  certain  groups  of  railroad  lines 
which  form  quite  distinct  systems  within  themselves,  the 
leading  features  and  effects  of  which  maybe  easily  under- 
stood. Of  these  systems  what  are  called  the  "  Trunk 
Lines,"  with  their  connections,  constitute  the  most  impor- 
tant, and  have  presented  in  their  operation  and  manage- 
ment perhaps  all  the  abuses  of  railroad  transportation, 
while  at  the  same  time  illustrating  the  splendid  public 
services  of  the  railroads  in  the  development  of  the  coun- 
try. The  trunk-line  system  embraces  the  lines  of  rail- 
roads connecting  the  upper  Mississippi  valley  with  the 
Atlantic  seaboard,  or,  as  more  usually  and  definitely  under- 
stood, such  of  those  lines  as  lie  east  of  the  Mississippi, 
and  north  of  the  Ohio  and  Potomac  rivers.  The  eastern 
termini  of  the  trunk  lines  are  at  Boston,  New  York,   Phil- 


lOO  PUBLIC  REGULATION  OF  RAILWAYS. 

adelphia,  and  Baltimore.  The  objective  point  of  all  of 
them  in  the  west  is  Chicago, — the  great  entrepot  of  the 
products  of  the  west  and  northwest  on  their  way  east 
— and  with  it  all  of  them  have  connections  more  of  less 
direct,  by  routes  more  or  less  circuitous.  The  trunk  lines 
proper  embrace  at  present  the  Grand  Trunk  of  Canada, 
the  New  York  Central,  the  West  Shore,  the  Erie,  the 
Delaware,  Lackawanna,  &  Western,  the  Pennsylvania, 
and  the  Baltimore  &  Ohio  railroads.  There  is  competi- 
tion between  all  these  lines  in  transportation  from  Chi- 
cago and  other  railroad  centres  in  the  west,  to  the  sea- 
board. There  is  also  competition  at  some  points  of  rail- 
way intersection  between  the  west  and  the  seaboard. 
But  at  the  vast  majority  of  points  on  the  trunk  lines  and 
their  connecting  (or  afTfiliating)  roads,  the  respective  roads 
have  an  absolute  monopoly  of  transportation. 

One  of  the  most  important  factors  in  the  trunk  line 
situation  lies  outside  of  the  railroads  themselves.  This  is 
the  water  route  from  Chicago  to  the  Atlantic,  furnished 
by  the  Great  Lakes,  the  Erie  Canal,  and  the  Hudson 
River, 

The  influence  of  water  routes  in  controlling  the  rates  of 
railways  has  been  explained  by  some  of  the  highest  au- 
thorities on  transportation  in  the  country.  In  the  report 
of  the  Hepburn  Committee  (p.  39),  it  is  said:  "While  the 
committee  made  no  attempt  to  investigate  the  relations 
of  the  railroads  to  the  canal,  and  sought  to  lessen  their 
labors  by  avoiding  this  question,  the  canal,  like  Banquo's 


DETERMINATION  OF  RATES.  1 01 

ghost,  would  not  down,  but  we  were  compelled  to  meet  it 
at  every  point  and  turn  of  the, investigation.  The  cost  of 
water  transportation  from  Chicago  to' New  '/ovk  is  the 
base  line  upon  which  rates  ni'e  det'trniinE',^'; -and  ^xed, 
throughout  the  country.  The  rates  by  agreement  of  the 
principal  railroads  of  the  country  are  made  a  certain  per- 
centage of  the  Chicago  rate  (Testimony,  pp.  3001,  '2,  '3,  '4). 
Thus,  Cincinnati  is  87  per  cent,  of  the  Chicago  rate,  St. 
Louis  116  per  cent.,  Kansas  City  146  per  cent.,  Louisville 
96  percent.,  Cleveland  73^  per  cent.,  etc.  There  remains  for 
the  railroads  to  do  this  additional  act  of  justice,  and  see 
that  rates  from  points  in  the  State  of  New  York,  to  the 
city  of  New  York,  are  made  a  proper  percentage  of 
the  Chicago  rate."  And  Mr.  Blanchard,  one  of  the 
most  eminent  men  in  the  railroad  profession,  says :  "  The 
rail  charges  from  Chicago  to  New  York,  lasting  through 
seven  months  or  more  in  twelve,  are  as  inflexibly 
controlled  by  the  charges  of  the  Lakes  and  St.  Lawrence 
River,  and  the  Erie  Canal  and  the  Hudson  River,  as  the 
charges  of  one  merchant  in  good  standing  and  business, 
are  regulated  by  those  of  another  good  merchant  in  the 
same  general  interests  and  business  across  the  street."  * 
The  far-reaching  influence  of  water  rates  upon  the  rates 
of  railways  is  fully  explained  in  a  letter  from  Albert  Fink, 
commissioner  of  the  associated  trunk  lines,  to  Senator 
Windom,  then  chairman  of  the  committee  of  the  United 
States  Senate,  on  "  Transportation  Routes  to  the  Sea- 
'  Testimony,  CuUom  Committee,  p.  149, 


I02  PUBLIC  REGULATION  OF  RAILWAYS. 

board."  He  says:  "When  the  rates  are  reduced  between 
Chicago  ard  New  York,  6n  account  of  the  opening  of  the 
canal,  the  reduction  appHes  not  only  from  Chicago,  but 
from  airinterior  cities  (St.  Louis,  Indianapolis,  Cincinnati) 
to  New  York.  If  that  were  not  the  rule,  the  result  would 
be  that  the  roads — running  say  from  St.  Louis,  Indian- 
apolis, and  Cincinnati,  to  Chicago — would  carry  the  freight 
to  Chicago,  from  which  point  low  rail  or  water  rates  would 
take  it  to  the  East,  and  leave  the  direct  railroad  routes 
from  these  interior  points  to  the  seaboard  without  any 
business.  Hence,  whenever  rates  are  reduced  on  account 
of  the  opening  of  navigation  from  Chicago  and  the  Lake 
ports,  the  same  reduction  is  made  from  all  interior  cities 
not  only  to  New  York,  where  the  canal  runs,  but  to  Bos- 
ton, Philadelphia,  and  Baltimore.  Although  the  latter 
cities  have  no  direct  water  communication  with  the 
West,  yet  they  receive  the  benefit  as  far  as  low  railroad 
rates  are  concerned,  to  the  same  extent  as  if  a  canal  was 
actually  running  from  the  Lakes  direct  to  those  cities, 
because  whenever  rates  from  Chicago  to  New  York  are 
reduced,  it  becomes  absolutely  necessary  to  reduce  cor- 
respondingly the  rates  from  Chicago  to  Boston,  Phila- 
delphia, and  Baltimore,  otherwise  these  cities  could  do 
no  business,  as  it  would  all  go  to  New  York.  The  re- 
duction of  the  rates  from  Chicago  and  St.  Louis  to 
New  York,  Baltimore,  etc.,  reduces  the  rates  from  West- 
ern points  via  New  York,  Baltimore,  and  ocean,  to  the 
Southern  Atlantic  ports.    .    .    .    The  railroads   running 


WATER   COMPETITION.  IO3 

directly  from  Chicago  and  St.  Louis,  via  Louisville, 
Nashville,  and  Chattanooga,  to  the  same  points,  are 
obliged  to  follow  the  reductions  made  via  the  rail  and 
ocean  routes.  .  .  .  The  same  is  true  in  relation  to  the 
West-bound  trafific.  .  .  .  There  need  be  no  fear  that  ex- 
tortionate rates  will  be  charged  by  railroad  companies ; 
on  the  contrary,  the  fear  is  that  water  competition  will 
be  so  effective  as  to  prevent  railroads  from  securing  pay- 
ing rates."  '  It  is  just  here  that  the  trouble  arises  ;  that 
is,  from  the  effectiveness  of  water  competition  in  keeping 
down  the  rates  of  railways  at  competing  points,  to 
figures  which,  if  everywhere  maintained,  would  reduce 
the  revenues  of  the  roads  in  many  cases  below  what 
they  are  entitled  to  earn.  The  result  of  the  competition 
existing  between  the  railroads  themselves  and  the  rail- 
roads and  the  canal,  so  long  as  fairly  maintained,  is,  of 
course,  to  prevent  extortionately  high  charges  between 
competing  points ;  that  is  to  say — speaking  generally  of 
the  trunk-line  system — between  the  west  and  the  sea- 
board. And  between  different  important  points  in  the 
west  and  tide-water  on  the  east  rates  are  adjusted 
with  some  reference  at  least  to  the  length  of  the  haul. 
But  the  closing  sentence  of  the  above  quotation  from 
the  Hepburn  Committee's  report  suggests  the  existence 
of  a  different  state  of  things  at  non-competitive  points, 

'  See  Reports  on  Internal  Commerce  of  U.  S.  for  1885,  p.  433  ;  also  for 
1886,  part  II.,  pp.  343,  344.  For  the  practical  method  of  adjusting  rates  see 
testimony  before  Interstate  Commerce  Commission  at  Atlanta,  etc.,  vol.  i., 
Repts. 


I04  PUBLIC  REGULATION  OF  RAILWAYS. 

and  intimates  the  concurrence  of  its  authors  in  the  popu- 
lar opinion  that  transportation  charges  should  bear  a 
somewhat  uniform  ratio  to  distance.  Examination  shows 
this  opinion  to  be  incorrect.  Any  attempt  to  estabh'sh 
rates  over  long  and  short  hauls  even  upon  the  same 
line  of  road,  strictly  in  proportion  to  distance,  must 
always  be  impracticable.  This  is  partly  due  to  the 
fact  that  several  elements  of  cost,  especially  the  terminal 
expenses,  are  the  same  in  either  case,  so  that  the  actual 
cost  of  service  is  greater  in  proportion  to  distance  upon 
the  short  haul,  than  upon  the  long.  But  a  more  potent 
reason  is  that  rates  fixed  strictly  in  proportion  to  length 
of  haul  would  be  so  high  as  to  prohibit  the  transporta- 
tion of  most  commodities  between  widely  separated 
points.  All  revenue  from  long-distance  traffic  would 
thereby  be  cut  off,  whereas  by  taking  it  at  lower  rates 
the  revenues  are  increased.  It  is  analogous  to  fixing  a 
tariff  on  imported  goods,  which  may  be  so  high  on  any 
given  article  as  to  prohibit  its  importation,  and  thereby 
diminish  revenues,  which  a  lower  rate  of  duty  would 
increase.'  This  argument  for  low  long-distance  rates,  it 
is  true,  proceeds  from  considerations  of  the  carriers'  inter- 
est only ;  but  the  general  public  welfare  equally  demands 
the  maintenance  of  this  salutary  principle  of  railroad 
transportation.  For  upon  it  is  based  the  immense  in- 
ternal commerce  of  the  country,  whereby  exchanges 
of  products  are  effected  between  the  most  distant  por- 

'  Hadley's  "  Railroad  Transportation,"  p.  no. 


LONG-DISTANCE  KATES.  I05 

tions  of  the  Union,  and  all  sections  bound  together  by 
the  strongest  ties  of  mutual  interest.  By  it  the  fields 
of  production  are  enormously  expanded  ;  the  values  of 
lands  remote  from  markets  are  enhanced  ;  the  price  of 
every  necessity  of  life  is  reduced  ;  the  surplus  products 
of  the  interior — West  and  South, — amounting  to  hun- 
dreds of  millions  in  value,  are  brought  to  the  seaboard, 
to  be  ultimately  laid  down  in  the  markets  of  Europe, 
and  the  balance  of  trade  is  preserved  in  favor  of  America. 
Undoubtedly  the  application  of  this  principle  has  pro- 
duced great  hardships,  especially  to  the  agricultural 
interests  of  the  Atlantic  States ;  but  the  number  of 
people  benefited  by  this  levelling  process  is  vastly  greater 
than  the  number  who  suffer  from  it,  and  it  is  quite  vain 
for  the  latter  to  hope  for  the  advantages  they  once  en- 
joyed. Yet  while  the  unfortunate  results  alluded  to  are 
in  large  measure  inevitable,  they  have  often  been  aggra- 
vated to  an  extent  that  cannot  be  justified.  For  the 
principle  just  considered  cannot  alone  account  for  the 
exaggerated  disproportion  which  frequently  exists  be- 
tween charges  on  long  and  short  hauls.  In  fact,  not  only 
are  rates  not  fixed  in  proportion  to  the  distance  to  and 
frojn  competitive  points,  as  compared  with  the  rates 
and  the  distance  to  and  from  non-competitive  points, 
but  in  some  cases  a  higher  absolute  charge  is  made 
for  the  short  haul  where  there  is  no  competition,  than 
for  the  longer  haul  where  there  is  competition.  The 
instances  of  this  practice  are  too  numerous  to  mention. 


I06  PUBLIC  REGULATION  OF  RAILWAYS. 

It  seems  to  be  part  and  parcel  of  the  whole  system  of 
railroad  management.  The  voluminous  testimony  which 
has  been  taken  on  the  subject  is  replete  with  illustra- 
tions of  it.  It  is  one  of  the  commonest  forms  of  dis- 
crimination by  railroads  against  localities.  Two  or  three 
illustrations  of  the  practice  will  sufifice.  For  example, 
the  town  of  Danville,  Va.,  is  reached  by  no  railroad 
except  that  of  the  Richmond  &  Danville  Company.  The 
Richmond  &  Danville,  however,  has  competitors  for  trafific 
between  the  south  and  southwest  and  the  city  of  Rich- 
mond, Va.  There  being  no  competition  at  Danville,  the 
railroad  company  was  enabled  to  charge,  and  did 
charge,  on  a  car-load  of  cattle  from  Newport,  Tennes- 
see, to  Danville,  $14  more  than  the  current  rate  through 
Danville,  140  miles  further,  to  Richmond.  More  was  also 
charged  on  consignments  of  melons  from  Columbia, 
S.  C,  to  Danville,  than  from  the  same  point  via  Dan- 
ville to  Richmond.'  The  following  instance  is  still  more 
striking :  "  A  merchant  of  Wilkesbarre,  Pa.,  purchased 
a  car-load  of  potatoes  at  Rochester,  N.  Y.,  and  had 
the  freight  bill  made  for  a  delivery  at  Philadelphia, 
because  the  freight  to  Philadelphia  was  less  than  it  was 
to  Wilkesbarre,  which  is  143  miles  nearer.  He  stopped 
the  potatoes  at  Wilkesbarre,  unloaded  them,  and  paid 
the  freight.  A  few  days  later  he  received  a  bill  from 
the  Lehigh  Valley  Railroad  Company  for  $12  addi- 
tional freight.     If  the  potatoes  had  gone  on  to  Philadel- 

'  See  Interstate  Com.  Repts.,  vol.  i.,  p.  707. 


AN  UNANSWERABLE    QUESTION.  107 

phia,  he  would  have  paid  $48  freightage  ;  as  they  stopped 
at  Wilkesbarre,  he  had  to  pay  $60;  that  is,  $12  for  not 
hauling  the  car-load  143  miles."  '  Railroad  men  some- 
times attempt  to  justify  this  practice,  on  grounds  of 
abstract  right  and  justice,  by  various  suggestions,  such 
as  the  greater  terminal  expenses,  in  the  case  of  the 
short  haul,  the  loss  incurred  by  leaving  cars  to  stand 
idle  at  local  stations,  the  inability  (usually)  to  procure 
return  loads  there,  etc.  No  doubt,  there  is  force  in 
these  suggestions,  but  not  enough  by  any  means,  as  a 
general  rule,  to  justify  the  disparity  in  charges  in  favor 
of  the  longer  haul.  And  the  argument  as  to  the  ter- 
minal expenses  is  offset  by  the  fact  (as  asserted  by  Mr. 
Blanchard)'  that  the  higher  taxes,  rents,  and  prices  in 
large  cities  make  the  terminal  expenses  of  railroads 
greater  there  than  at  the  smaller  towns  and  stations. 
And  yet  the  large  cities  are  termini  of  railways,  centres 
of  competition,  and  receive  always  the  most  favorable 
rates,  which  smaller  intermediate  places  are  usually 
unable  to  obtain. 

General  Devereux,  president  of  one  of  the  important 
western  railroads,  "  speaking  from  an  experience  of  over 
thirty-seven  years  of  railroad  service,"  said,  in  answer  to  the 
inquiry  why  a  railroad  company  should  charge  more  for 
a  short  than  for  a  longer  haul :  "  You  cannot  answer  the 
question  why  it  should  charge  more  in  any  reasonable 
way."'  The  General,  however,  defended  the  practice, 
'  Test.,  CuUom  Com.,  pp.  531,  532.     Va'.,  pp.  153,  155.     '/</., pp.  817,  837. 


I08  PUBLIC  REGULATION   OF  RAILWAYS. 

saying  that  the  people  who  suffered  from  it  probably  en- 
joyed compensating  advantages.  "  It  may  be  from  their 
beautiful  location.  Perhaps  the  beauty  of  the  scenery 
or  the  merit  of  the  town,  or  something  of  that  sort,  will 
account  for  it."  It  is  frequently  said,  too,  that  so  long  as 
the  local  point  is  given  rates  reasonable  in  themselves 
there  is  no  cause  of  complaint,  simply  because  competitive 
points  are  given  lower  rates.  And  the  rates  at  local 
points  are  demonstrated  to  be  entirely  reasonable,  by 
comparison  with  the  rates  in  existence  before  the  advent 
of  the  railway.  But  the  mere  fact  of  a  rate  being  high  or 
low  does  not  determine  the  welfare  of  a  community  or  an 
individual.  It  is  the  question  of  relative  rates.  Thus  to 
use  the  illustration  given  by  Mr.  Simon  Sterne':  "The 
city  of  Santa  Fe,  in  New  Mexico,  which  was  once  a  flour- 
ishing place,  and  the  entrepot  of  the  caravan  trade,  is  in 
a  condition  of  decadence.  Its  business  is  being  removed 
to  Las  Vegas  and  Albuquerque ;  and  yet  the  rates  of 
transportation  since  a  rail  line  has  been  built  to  it  lately 
are  much  less  than  the  rates  which  the  ox-teams  charged 
for  going  over  the  mountains  into  Santa  Fe.  But  as  the 
rates  to  Las  Vegas  and  Albuquerque  are  still  lower,  they 
take  the  business,  and  Santa  Fe  is  suffering  decay.  An 
intelligent  witness  who  has  made  a  special  study  of  the 
subject,  speaking  of  the  effect  of  railroad  discriminations 
upon  the  agricultural  interests  of  Pennsylvania,  says : 
"  The  losses  to  farmers  at  non-competitive  points  in  the 

'  Testimony,  Cullom  Committee,  p.  69. 


AGGRAVATING   CIRCUMSTANCES.  109 

State  have  been  computed  by  a  committee  of  the  State 
Board  of  Agriculture  at  from  six  to  eight  per  cent,  of  the 
annual  product  of  their  lands;  and  the  census  of  1880 
showed  that  while  the  acreage  of  improved  land  had  in- 
creased, and  while  the  proportion  of  our  non-agricultural 
population  had  increased  in  1880,  so  that  each  farmer  fed 
four  other  workers,  as  compared  with  three  other  workers 
in  1870,  yet  the  value  of  our  agricultural  products  had  de- 
clined at  the  rate  of  $22,000,000  a  year."  ' 

The  decline  in  the  value  of  agricultural  lands  through- 
out the  Atlantic  States  generally  tells  the  same  story. 

An  instance  of  the  greater  charge  for  the  shorter  haul, 
under  peculiarly  aggravating  circumstances,  was  cited  by 
Senator  Wilson,  of  Iowa,  in  the  debate  on  the  Interstate 
Commerce  bill.'  It  appears  there  was  a  large  surplus  of  corn 
in  western  Iowa,  and  an  almost  total  failure  of  the  crop  in 
the  eastern  part  of  the  State,  where  it  was  greatly  needed 
to  feed  the  surplus  stock ;  and  yet  the  rates  on  corn  from 
western  Iowa  and  Omaha  to  points  in  eastern  Iowa  were 
higher  than  the  rates  from  Omaha  to  Chicago.  I f  the  farmers 
of  eastern  Iowa  had  been  given  even  the  Chicago  rate,  it 
would,  said  Senator  Wilson,  have  tided  them  over  the 
exceptional  period  of  depression  and  loss.  As  it  was,  the 
farmers  had  to  sell  their  horses,  cattle,  and  hogs  in  a  de- 
pressed market  at  whatever  prices  they  could  get.  Such 
are  some  of  the  results  which  have  been  proven  to  follow 
from  discriminating  in    charges  against  non-competitive 

'  Test.,  Cullom  Com.,  p.  531.         "  Cong.  Record,  1886-7,  PP-  329,  330, 


no  PUBLIC  REGULATION  OF  RAILWAYS. 

points,  as  compared  with  the  rates  given  competitive 
points  where  a  longer  haul  is  required.  And  one  of  the 
most  astute  and  experienced  railroad  men  in  the  country 
has  been  forced  to  confess  that  no  good  reason  can  be 
given  for  such  discriminations.'  But  General  Devereux 
must  have  meant  this  remark  to  apply  only  to  those  cases 
where  discriminations  are  made  arbitrarily,  and  not  where 
the  necessity  of  thus  discriminating  is  forced  upon  the 
companies  by  circumstances  which  are  beyond  their  con- 
trol, and  which  acquit  them  of  the  charge  of  injustice  to 
communities  upon  which  the  higher  rates  are  imposed. 
How  far  discriminations  of  this  character  are  arbitrarily 
imposed,  merely  to  swell  earnings  beyond  a  fair  return  on 
the  just  value  of  the  railroad  property, — in  which  event 
they  are  of  course  unjust, — it  is  impossible  to  say,  except 
after  special  examination  of  special  cases  of  complaint. 
And  it  has  already  been  shown  that  if  railroad  practices 
benefit  the  companies  to  the  detriment  of  the  community, 
it  is  the  right  and  the  duty  of  the  State  to  interfere.  But 
there  is  undoubtedly  a  large  class  of  cases  where  an  abso- 
lute prohibition  to  charge  more  for  the  short  than  for  the 
long  haul  under  any  circumstances  would  work  an  injus- 
tice to  the  railroads  without  benefiting  the  community 
which  is  charged  the  higher  rates. 

The  practice  of  charging  more  for  the  short  than  for 
the  long  haul — appearing  as  it  does  to  reverse  the 
natural  advantages  of  geographical  position — has  been  the 

'  See  ante. 


JUSTIFIABLE  RATES.  Ill 

subject  of  so  much  popular  animadversion  that  it  is  worth 
while  to  examine  at  some  length  the  circumstances  and 
conditions  under  which  it  appears  to  be  justifiable.  In 
doing  this  it  will  be  assumed  that  a  railroad  company  is 
justly  entitled  to  charge  such  rates  as  will  enable  it  to  earn 
a  reasonable  net  income  on  the  just  value  of  its  property, 
provided  X\\\'&  Q.-A.xi  be  done  without  inflicting  injury  on  any 
portion  of  the  community  it  is  intended  to  serve.  This  is 
surely  a  reasonable  postulate.  Discrimination  which  pro- 
duces no  injury  cannot  be  considered  unjust,  and  if  it  can 
be  shown  that  discrimination  may  in  certain  cases  be 
actually  beneficial  to  the  community  apparently  discrimi- 
nated against,  it  should,  instead  of  being  denounced,  be 
encouraged  to  the  furthest  limit  of  its  beneficial  operation. 
Justifiable  discrimination  in  favor  of  the  longer  haul  is  the 
result  of  competition.  It  has  been  shown  how  rates  by 
rail  are  affected  by  water  rates.  Where  rail  routes  and 
water  routes  come  in  competition  for  the  carriage  of  the 
same  product,  the  rates  by  rail  must  be  put  nearly  or 
quite  as  low  as  the  rates  by  water,  or  else  the  water  routes 
will  take  all  the  freight.  And  different  routes  (whether 
both  rail,  or  one  rail  and  one  water)  may  be  competitive, 
although  they  have  only  one  common  field  or  terminus  for 
the  collection  or  distribution  of  freights,  while  the  other 
termini  may  be  separated  by  hundreds  or  thousands  of 
miles.  It  is  by  no  means  necessary  that  routes  should  be 
parallel  to  make  them  competitive.  Thus  the  rail  lines 
connecting  upper  Georgia  v/ith  Chattanooga  and  Rich- 


112  PUBLIC  REGULATION  OF  RAILWAYS. 

mond  respectively  compete  with  each  other  in  carrying 
the  iron  manufactures  of  those  cities  to  their  common 
territory  in  upper  Georgia."  The  lines  connecting  points 
in  Alabama  with  Savannah  and  New  Orleans  respectively, 
compete  in  the  carriage  of  cotton  from  their  common  ter- 
ritory to  those  markets."  The  rail  lines  connecting  the 
Southern  lumber  regions  with  the  cities  on  the  great 
lakes  compete  in  the  carriage  of  lumber  with  the  lake 
vessels  connecting  those  cities  with  the  lumber  regions  of 
the  Northwest.'  The  rail  lines  connecting  the  lime-kilns 
of  Virginia  with  the  South  Atlantic  cities*  compete  with 
coastwise  vessels  from  Maine  in  the  transportation  of 
lime  to  those  points.  The  rail  lines  connecting  the  pig- 
iron  furnaces  of  the  interior  with  the  New  England  cities 
are  frequently  brought  into  competition  with  "  tramp 
steamers  "  bringing  in  Scotch  iron  as  ballast.'  The  water 
routes  of  the  Mississippi  River  and  its  tributaries  compete 
with  the  trunk  lines  and  their  tributaries  in  the  transpor- 
tation of  the  products  of  the  Mississippi  valley.  That 
great  territory  is  a  common  field  or  terminus  of  both 
systems  of  transportation,  though  the  other  terminus  of 
the  water  routes  is  at  New  Orleans,  and  the  other  termini 
of  the  trunk  lines  are  the  cities  of  the  North  Atlantic 
coast.  The  other  great  water  route  from  the  West  to  the 
seaboard,  to  wit,  that  by  the  lakes  and  the  Erie  Canal,  has 

'  See  Rept.  on  Internal  Commerce  U.  S.  1886,  part  2,  p.  334. 

*  See  vol.   i.,  Interstate  Commerce  Repts.,  p.  125,  testimony  of  Ponder, 

'  Id.,  p.  97.  ■•  Id.,  p.  106.  *  Id.,  p.  163,  164. 


MUTUAL  INFLUENCE.  II3 

already  been  referred  to  as  an  essential  factor  in  the 
establishment  of  railroad  rates.  The  river  route  perhaps 
exerts  a  scarcely  less  potential  influence.'  Any  consid- 
erable and  permanent  rise  in  railroad  rates  to  and  from  the 
West  would  probably  result  in  the  diversion  of  the  traffic 
to  the  water  routes,  thus  cutting  off  the  railroads  from  a 
considerable  portion  of  their  through  traffic. 

The  same  is  true  in  respect  to  railroad  rates  between 
points  on  the  North  Atlantic  coast  and  points  on  the 
South  Atlantic  and  Gulf  coasts,  where  competition  exists 
between  rail  and  water  routes.  It  is  equally  true  of  the 
transcontinental  lines  connecting  the  Atlantic  and  Pacific 
oceans,  and  indeed  wherever  competition  between  rail  and 
water  routes  exists.  The  mutual  influence  of  the  trans- 
portation routes  of  the  world  upon  each  other  might  indeed 
be  shown  to  be  far  more  pervasive  than  any  thing  here  sug- 
gested would  indicate.  For  it  is  not  the  commerce  of  one 
nation  or  continent  alone,  that  determines  the  conditions 
of  transportation  within  its  limits,  but  that  of  the  civilized 
world.  The  limited  scope  of  this  inquiry  forbids  entering 
upon  so  broad  a  field.  Yet  it  sufficiently  appears  that  at 
competitive  points  the  rail  charges  must  be  so  far  reduced 
as  to  approximate  the  charges  by  water,  or  else  the 
tonnage  which  will  bear  water  transportation  will  go  that 
way. 

The  question  is  thus  presented,  whether  if  the  railroads 
are  cut  off  from  the   "  through  "  or  -competitive  traffic, 

'  See  Testimony,  Cullom  Committee, /a^jm. 


114  PUBLIC  REGULATION  OF  RAILWAYS. 

they  can  maintain  their  present  net  revenues  without 
raising  rates  on  local  or  non-competitive  traffic.  The 
question,  in  other  words,  is  whether  the  reduction  in  ex- 
penses arising  from  the  loss  or  abandonment  of  through 
traffic  is  less  or  more  in  actual  amount  than  the  reduction 
of  the  revenue. 

It  is  by  no  means  whether  the  earnings  on  through 
traffic  are  proportionately  as  great  as  the  earnings  on  local 
or  non-competitive  traffic,  but  simply  whether  any  earn- 
ings at  all  are  derived  from  it,  over  and  above  the  addi- 
tional expense  incurred  in  carrying  the  through  traffic. 
It  is  easily  demonstrable  that  this  additional  expense  is 
trivial  in  amount  compared  with  the  immense  increase  in 
carrying  capacity  and  in  tonnage  that  may  be  secured  by 
it ;  and  where  a  large  volume  of  through  traffic  can  be  ob- 
tained by  a  comparatively  small  additional  outlay,  it  does 
undoubtedly,  even  at  very  low  rates  of  transportation,  add 
largely  to  the  net  earnings  of  the  road.  And  by  taking 
that  competitive  traffic  even  at  those  excessively  low  rates, 
the  railroads,  to  the  extent  that  any  net  revenue  is  derived 
from  it,  are  enabled  to  reduce  the  rates  on  the  local  traf- 
fic, and  still  earn  their  reasonable  net  income. 

If  therefore  it  be  true  that  water  competition  frequently 
limits,  railroad  charges,  it  may  be  better  for  the  local  traffic 
that  the  competitive  traffic  should  be  taken  at  that  limit, 
even  though  it  be  actually  less  than  the  local  rate,  for  the 
shorter  transportation ;  provided,  always,  the  railways 
will  make  more,  or  lose  less,  by  taking  the   competitive 


LIMIT  OF  COMPETITION.  II5 

business  than  by  refusing  it, — that  is  will  increase  their 
net  earnings.  The  reason  which  compels,  and  justifies,  a 
railroad,  in  competition  with  water  routes,  to  lower  its 
rates  at  competitive  points  to  figures,  it  may  be,  less  than 
those  charged  for  a  shorter  haul  and  less  costly  service, 
is  simply  that  water  transportation  is,  on  the  average, 
cheaper  than  rail  transportation,  and  the  railroad  would 
not  otherwise  get  the  competitive  business. 

And  this  feature  of  railroad  practice  is  justifiable  only 
when  the  competitive  business  adds  something — small 
though  it  may  be — to  net  earnings. 

Beyond  this  limit  competition  is  certainly  unjustifiable, 
and  the  competitive  rate  constitutes  an  unjust  discrimi- 
nation against  the  local  traf^c. 

But  it  is  easy  to  see  that  the  average  cost  of  trans- 
portation over  one  line  of  railway  may  as  much  exceed 
that  over  another  which  reaches  the  same  competitive 
point  or  region,  as  the  average  cost  of  transportation  over 
the  latter  exceeds  the  average  cost  of  water  carriage.  The 
advantage  of  one  rail  line  over  another  (competing  line), 
in  the  average  cost  of  carriage,  may  result  from  the  lesser 
length  of  the  line,  lighter  gradients,  superiority  of  rolling 
stock,  and  condition  of  track,  but  above  all  from  the 
greater  volume  of  traffic  which  it  enjoys. 

A  road  thus  fortunately  circumstanced,  passing  through 
a  rich  and  densely  populated  region,  and  receiving  heavy 
freights  at  all  points  along  its  line,  may  well  afford  to 
haul  at  an  average  rate  of  say  three  fourths  of  a  cent  per 


I  1 6  PUBLIC  REGULA  TION  OF  RAIL  WA  YS. 

ton  per  mile.  And  it  is  quite  conceivable  that  such  a 
road,  even  in  competition  with  water,  may  so  adjust  its 
tariffs  as  never  to  charge  more  for  the  shorter  than  the 
longer  haul,  and  still  maintain  its  revenues  at  a  figure 
affording  an  ample  return  on  the  just  value  of  the  prop- 
erty. But  another  rail  line  may  have  one  terminus  in  a 
region  or  place,  which  affords  the  opportunity  of  compe- 
tition with  the  road  above  described,  while  its  other  termi- 
nus may  be  reached  only  by  a  longer  and  steeper  route, 
over  an  inferior  track,  through  poor  and  sparsely  settled 
communities  which  furnish  but  little  freight.  It  may  very 
likely  be,  and  frequently  is  true,  that  such  a  road  barely 
realizes  net  earnings  sufl[icient  to  pay  a  meagre  return 
upon  the  just  value  of  the  investment  by  charging  an 
average  rate  of  say  one  and  a  half  cents  per  ton  per  mile. 
Such  a  road,  to  get  any  of  the  competitive  business,  must 
make  its  rates  at  least  as  low  as  its  competitor.  It  may 
well  do  this  and  still  make  some  small  net  earnings  from 
the  business.  But  if  its  local  rates  must  be  so  reduced 
that  the  charge  for  the  shorter  shall  never  exceed  that  for 
the  longer  competitive  haul,  the  net  revenues  will  be  so 
reduced  as  to  afford  a  grossly  inadequate  return,  if  any, 
on  the  value  of  the  property.  To  comply  with  a  "  long- 
and-short-haul  "  law  forces  a  road  in  the  predicament  last 
described  to  adopt  one  of  two  alternatives.  It  must  either 
lower  its  local  rates  to  the  level  of  competitive  rates, 
which  will  almost  certainly  involve  a  loss  of  net  earnings, 
or  it  must  abandon  the  competitive  traffic,  in  which  latter 


INJUSTICE  TO  RAILWAY  INTERESTS.  W] 

event  the  question  of  net  earnings  will  depend  on  whether 
the  local  or  non-competitive  traffic  will  bear  any  higher 
charge  or  not.  If  it  will  bear  any  higher  charge,  it  will 
certainly  be  imposed,  with  the  hope  of  producing  net 
earnings  sufficient  to  yield  a  reasonable  income  on  invest- 
ment. It  is  difficult  to  see  how  the  adoption  of  this 
course  by  the  railway,  to  make  a  reasonable  income  on  its 
property,  could  be  considered  extortionate  under  such 
circumstances,  but  it  would  doubtless  be  a  grievous  bur- 
den to  the  local  interests.  To  adopt  the  other  alterna- 
tive, and  force  the  railways  to  lower  their  rates  under 
such  circumstances  as  have  been  supposed  (and  they  fre- 
quently exist),  is  so  unjust  to  the  railway  interests  that  it 
should  never  be  forced  upon  them  ;  and,  indeed,  it  would 
seem  to  be  a  violation  of  their  constitutional  rights.  For 
be  it  observed  that,  in  spite  of  the  prohibition  against 
charging  more  for  the  shorter  than  the  longer  haul,  the 
more  distant  competitive  points  and  regions  still  enjoy 
the  benefit  of  the  lower  rates  through  the  medium  of  the 
water  routes  and  of  the  stronger  railway  lines,  which  are 
able  to  comply  with  the  law,  and  at  the  same  time  main- 
tain their  revenues  on  a  reasonably  remunerative  basis. 
The  evil  sought  to  be  removed  therefore  remains  una- 
bated, and  may  very  probably  be  aggravated  by  a  long- 
and-short-haul  law  of  general  and  imperative  application. 
The  community  or  locality  which  has  to  pay  the  higher 
rates  of  course  suffers  grievously  from  the  competition  of 
the  region  which  enjoys  the  advantages  in  the  rates  and 


Il8  PUBLIC  REGULATION  OF  RAILWAYS. 

facilities  of  transportation.  It  may  even  be  compelled  to 
abandon  the  industries  which  have  long  sustained  it,  and, 
at  a  great  sacrifice  of  time  and  capital,  to  embark  in 
others  which  are  beyond  the  range  of  competitive  influ- 
ence. Thus  the  agriculture  of  the  middle  States  of  the  At- 
lantic seaboard  has  inevitably  declined  under  the  pressure 
of  western  competition,  and  the  railroads  are  generally 
regarded  as  the  prime  cause  of  the  depression.  Undoubt- 
edly its  cause  is  to  be  found,  in  large  measure,  in  the 
cheap  transportation  by  water  routes  and  rail  routes  from 
the  West  to  the  seaboard.  But  the  prohibition  to  charge 
less  for  the  longer  than  the  shorter  haul  will  not  help  the 
situation  of  the  eastern  farmer,  located  on  a  weak  line  of 
railway,  which  is  thereby  compelled  to  abandon  its  com- 
petitive traffic,  so  long  as  the  water  routes  and  the  strong 
rail  routes  comply  with  the  law  and  still  carry  at  the  same 
low  rates.  Such  a  prohibition,  resulting  in  the  abandon- 
ment of  the  through  traffic,  may  diminish  the  revenues  of 
the  road  which  serves  the  eastern  farmer,  but  it  will  not 
enhance  the  prices  of  his  products  in  the  markets  of  the 
world,  for  they  are  governed  by  the  cost  of  transportation 
over  the  cheapest  routes  by  which  the  demand  can  be 
supplied.  It  is  cheap  transportation  over  other  routes 
which  puts  him  at  a  disadvantage,  much  more  than  the 
discrimination  in  favor  of  the  longer  haul  by  the  line  over 
which  he  ships.  And  one  of  the  essentials  to  the  justifi- 
cation of  this  discrimination  is  the  existence  of  cheaper 
transportation  over  other  routes.     If  the  traffic  from  or  to 


AN  IMPORTANT  QUESTION.  IIQ 

the  competitive  point  will  at  all  events  be  transported  at 
a  certain  price,  then  a  competing  line  is  justified  in  tak- 
ing it  from  or  to  that  point  at  the  same  ^x'\ce, providcdits 
net  earnings  are  thereby  increased.  And  the  local  shipper 
over  the  latter  line  is  not  prejudiced  by  its  doing  so. 

The  important  question  to  the  local  shipper,  and  the 
question  which  public  investigation  should  settle  in  such 
a  case,  is,  whether  the  local  rates  may  not  be  reduced,  and 
still  leave  the  net  earnings  sufficient  to  yield  a  fair  return 
on  the  just  value  of  the  railroad  property. 

A  large  amount  of  the  cheaper  classes  of  freight  is  some- 
times transported  over  long  distances,  at  rates  per  ton 
per  mile  which  are  actually  less  than  the  average  cost  per 
ton  per  mile  of  the  total  transportation  of  freight.  Par- 
adoxical as  it  may  appear,  this  may  often  be  done,  and 
still  some  net  earnings  be  derived  from  the  business. 
How  it  may  be  done  may  be  understood  when  it  is  con- 
sidered that  the  average  cost  of  the  total  transportation 
consists  in  large  part  of  items  which  vary  very  little,  if 
any,  with  the  volume  of  traffic,  such  as  maintenance  of 
way  and  other  fixed  charges  ;  while  the  "  additional  cost  " 
of  any  given  amount  of  additional  traffic  consists  almost 
solely  of  the  expense  immediately  attendant  upon  its  car- 
riage— that  is,  the  cost  of  conducting  that  particular  item 
of  transportation,  which  is  but  a  small  part  of  the  entire 
operating  expenses. 

The  reports  annually  made  by  railroad  companies  of 
their  business  operations,  usually  show  the  average  rate 


120  PUBLIC  REGULATION   OF  RAILWAYS. 

per  ton  per  mile  received  for  the  transportation  of  freight. 
In  these  reports  the  expenses  of  operating  the  road  are 
also  given,  and  are  allotted  part  to  passenger  trafific  and 
part  to  freight  trafific.  The  operating  expenses  are  fur- 
ther subdivided  and  distributed  under  the  heads  of 
"  conducting  transportation,"  of  "  motive  power,"  of 
"  maintenance  of  way,"  of  "  maintenance  of  cars,"  and 
of  "  general  expenses."  While  this  apportionment  and 
distribution  of  expenses  cannot  be  entirely  accurate,  it  is 
suf^ciently  so  for  the  purposes  of  the  present  reference. 

An  examination  of  these  reports  will  show  that  the 
cost  of  "  conducting  transportation  "  allotted  to  freight 
traffic  is  frequently  much  less  than  one  half  the  total 
operating  expenses  allotted  to  freight  traffic. 

The  following  illustrative  figures  are  calculated  from 
the  report  of  a  road  which  carries  a  large  tonnage  of  coal 
over  a  distance  exceeding  four  hundred  miles,  and  also  a 
considerable  tonnage  of  cotton,  corn,  and  other  products 
from  the  Mississippi  valley  to  the  seaboard.' 

There  are  doubtless  cases  where  the  road  referred  to 
charges  a  less  rate  than  .382  cts.  per  ton-mile  (or  less  than 
the  average  expense)  for  carrying  freight,  and  yet  it  may 
make  money  by  doing  so. 

'  The  Norfolk  &  Western  R.  R.  Co.  See  Report  R.  R.  Commr.  of  Va. 
for  1887,  p.  83,  etc. 

Average  rate  per  ton  per  mile  on  all  classes  of  freight  (about)  .  .621  cts. 
Average   total   operating   expenses  per  ton-mile,   allotted  to 

freight  traffic  (about)  382  cts. 

Average  cost  per  ton-mile  of  "  conducting  transportation  "  of 

freight  (about)  148  cts. 


A   PLAUSIBLE  FORMULA.  121 

The  popular  opinion  very  generally  entertained  is  that 
railroad  companies,  in  charging  more  for  the  short-dis- 
tance non-competitive  traffic  than  for  the  long-distance 
competitive  traffic,  make  up  by  excessive  charges  upon 
the  former  a  total  or  partial  loss  which  they  sustain  upon 
the  latter.  Or  at  least  the  fact  that  they  can  carry  the 
latter  so  cheaply  at  a  profit,  is  thought  to  demonstrate 
their  ability  to  carry  the  former  at  equally  low  rates.  " 
Mr.  Hudson  undertakes  to  prove  this  by  a  formula,' 
which,  though  evidently  conclusive  to  his  mind,  is  really 
more  plausible  than  sound.  He  says  :  "  The  working 
expenses  of  railways  in  the  United  States  are  upon  the 
average  65.21  per  cent,  of  the  gross  earnings.  It  is  sub- 
stantially within  the  margin  of  34.79  per  cent,  of  the  gross 
earnings,  then,  representing  the  entire  net  earnings  of  the 
road,  that  a  variation  of  rates  between  points  approxi- 
mately equal  in  distance  might  be  made  without  incurring 
actual  and  direct  loss  in  each  single  transaction." 

The  fallacy  of  the  argument  consists  in  the  assumption 
that  the  cost  of  each  single  transaction,  as  the  business  is 
more  and  more  enlarged,  is  as  great  as  the  cost  of  the  same 
transaction  where  the  business  is  very  limited.  This  is 
contrary  to  all  business  experience,  and  will  not  stand  the 
test  of  practical  application,  as  will  presently  be  shown. 

If,  indeed,  the  competitive  traffic  is  carried  at  a  loss, 
the  popular  opinion  above  referred  to  is  undoubtedly 
correct.     And  where  it  is  carried  at  any  less  rate  than  the 

'  "  The  Railways  and  the  Republic,"  p.   163. 


122  PUBLIC  REGULA  TION  OF  RAIL  WA  YS. 

exigencies  of  competition  force  upon  the  railroad,  there 
is  just  cause  for  complaint  on  the  part  of  the  local  shipper. 
He  also  has  just  cause  of  complaint  where  the  company 
might  reduce  its  local  to  the  level  of  (or  below)  its  com- 
petitive rates,  and  still  earn  a  reasonable  income  on  the 
just  value  of  its  property.  But  where  the  traffic,  which 
would  else  go  by  some  other  route,  is  taken  on  the  best 
terms  that  can  be  had  by  the  railroad,  and  adds  somethmg 
to  the  net  earnings,  which  would  otherwise  fail  to  pay 
a  reasonable  income  on  the  Just  value  of  the  property, — under 
these  circumstances  the  opinion  is  erroneous,  and  the 
complaint  is  not  well  founded. 

That  these  circumstances  frequently  exist  may  be 
shown  by  a  single  practical  example.  There  is  a  certain 
road  whose  average  rate  per  ton  per  mile  is  about  1.6 
cents,  which  pays  a  net  income  of  six  per  cent  on  a  value 
of  about  $20,000  per  mile,  which  is  certainly  less  than  the 
just  value  of  the  property.  At  a  certain  point  on  this 
road  it  receives  a  considerable  amount  of  competitive 
freight,  which  it  is  compelled  to  take  at  about  .8  cent 
per  ton-mile  (one  half  its  average  rate),  or  else  lose  the 
business.  The  distance  from  the  point  where  this  freight 
is  received  to  the  terminus  of  the  road  where  it  is  deliv- 
ered is  about  one  hundred  miles.  In  the  case  under  consid- 
eration, the  road  in  question  receives  the  competitive  freight 
from  a  connecting  road,  in  cars  belonging  to  the  latter. 
For  the  use  of  those  cars  it  has  to  pay  the  company  which 
owns  them  three  fourths  of  a  cent  per  car  for  every  mile 


ADDITIONAL   EXPENSE.  I  23 

run.  The  other  expenses  of  taking  the  competitive  freight 
— in  addition  to  expenses  which  remain  the  same  whether 
it  is  taken  or  refused — are  a  few  extra  clerks  and  laborers 
at  the  points  where  the  freight  is  taken  and  delivered,  a 
few  additional  engines  and  caboose  cars,  with  the  wear 
and  tear  upon  them,  the  coal  and  grease  consumed  and 
used,  and  the  pay  of  the  additional  train-men.  The  ex- 
pense of  additional  clerks  and  laborers  is  so  small  as  to  be 
almost  inappreciable  when  apportioned  among  all  the 
additional  train-loads  of  freight ;  and  the  interest  on  the 
cost  of  additional  equipment,  when  apportioned  in  the 
same  way,  is  but  trivial. 

The  "  additional  expense  "  of  any  single  train-load  of 
twenty  cars,  carrying  ten  tons  each,  is,  practically,  1st, 
the  "  car-mileage  "  paid  the  connecting  road  for  the  use 
of  its  cars  (which  is  probably  a  fair  estimate  of  what  the 
expense  would  be  if  the  company  used  its  own  cars)  ;  2d, 
wages  paid  the  crew  ;  3d,  coal  consumed  by  the  engine  ; 
4th,  grease  and  ordinary  wear  and  tear  of  engine  and 
caboose. 

The  receipts  for  a  train-load  of  cattle  (a  fair  sample  of  the  ^ 

average  rate)  carried  the   100  mileb,   at  .8  cents  per  ton  !-  $160.00 

per  mile,  are  about         ......  ' 

Off  car  mileage,  100  miles  and  return,  at  3^  cents  per  mile  \ 

each  way  on  twenty  cars  ;  and  one  caboose,  estimated  at  ;-$3i.5o 

same  cost       ........  ) 

Wages  of  crew  of  five  men,  aggregate  10  cents  per  mile  i 

,  -  $20.00 

each  way        ........  )  "^ 

Coal,  ten  tons  for  the  round  trip,  at  $2.50  per  ton      .         .     $25.00 

Grease  and  ordinary  wear  and  tear  (estimated)  .  $5.00     $81.50 

Net  earnings  on  train-load  of  cattle  .         .         .  $78.50 


124  PUBLIC  REGULATION    OF  RAILWAYS. 

In  the  example  taken  of  the  cattle  train,  the  train  has 
been  supposed  to  return  entirely  empty,  at  a  dead  loss. 
If  a  full  or  even  partial  return  load  can  be  had — as  is 
frequently  the  case, — the  transaction  becomes  a  much 
more  profitable  one.  In  the  foregoing  illustration  there 
was  no  expense  to  the  company  of  loading,  unloading, 
and  handling  the  competitive  traffic.  This  additional 
expense,  where  necessary,  of  course,  diminishes  the  profit 
on  the  transaction  ;  but  it  is  quite  evident  that  a  net 
profit  would  still  remain,  even  were  such  expense  in- 
curred and  deducted  from  receipts.  And  yet  there  is  not  a 
single  point  on  the  one  hundred  miles  of  road  over  which 
the  competitive  freight  passes  that  is  charged  less  than 
double  the  rate  per  ton-mile  to  the  terminus  of  the  road, 
though  the  distance  traversed  is  less.  But  if  all  rates 
were  reduced  to  the  level  of  the  rate  on  the  competitive 
trafific,  the  road  would  hardly  pay  expenses  ;  and  the 
same  result  would  follow  were  the  competitive  freight 
refused,  unless  the  local  rates  are  raised  to  meet  the  defi- 
ciency. In  many  other  occupations  besides  that  of  rail- 
road transportation,  work  is  done  at  a  profit  far  below  what 
would  be  remunerative  if  applied  to  the  entire  business 
operations,  and  yet  that  work,  under  the  circumstances, 
undoubtedly  increases  the  net  earnings  of  the  business. 
This  is  constantly  the  case  in  agricultural  operations. 
For  example,  a  farmer,  with  the  arable  land  at  his  dis- 
posal, and  with  a  very  slight  increase  in  the  number  of 
laborers,  and  of  farm  implements  which  he  must  in  any 


FIXED   CAPITAL.  12$ 

event  employ  and  provide,  can,  in  connection  with  his 
other  crops,  profitably  produce  some  commodity,  the 
cultivation  of  which,  if  undertaken  alone,  would  actually 
bring  him  in  debt.  So  if  he  has  land  fit  only  for  pastur- 
age, and  pasturage  in  the  neighborhood  is  abundant  and 
cheap,  he  can,  rather  than  receive  no  income  from  that 
land,  take  animals  to  pasture  at  any  price  that  will 
more  than  pay  the  actual  cost  of  keeping  them. 
He  thus  gets  a  certain  additional  profit  on  his  fixed 
capital,  and  small  though  that  be,  it  increases  the  net 
earnings  (or  decreases  the  loss)  of  his  entire  farming 
operations.  The  illustrations  might  be  multiplied  in- 
definitely. 

The  roadbed,  track  etc.,  of  a  railroad  company  are  analo- 
gous to  the  land  of  the  farmer.  They  constitute  the  fixed 
capital,  and  a  small  additional  outlay  upon  it  in  wages 
and  equipment  will  frequently  very  largely  increase  the 
profits  of  business.  Whenever  the  net  revenues  of  a  road 
are  increased  by  taking  competitive  traffic,  it  begins  to 
approach — and  very  probably  reaches — the  point  where 
it  may  reduce  local  charges,  and  still  have  a  reasonable 
income  left  on  the  just  value  of  its  property. 

One  of  the  most  important  functions  of  public  railway 
regulation  is  to  see  that  when  that  point  is  reached,  a 
reduction  in  local  charges  is  begun.  And  as  the  net 
revenues  are  more  and  more  increased,  the  local  rates 
should  be  brought  more  and  more  into  harmony  with  the 
through   or  competitive    rates.      Paradoxical    as  it  may 


126  PUBLIC  REGULATION   OF  RAILWAYS.  " 

seem  on  the  first  blush,  reflection  leads  to  the  conclusion 
that  the  practice  of  charging  less  for  the  longer  than  the 
shorter  haul,  under  the  limitations  which  have  been  suggested, 
confers  upon  the  less-favored  communities  a  portion  of 
the  benefits  which  the  most-favored  enjoy  in  the  matter 
of  transportation.  It  tends  to  a  diffusion  and  equilibrium 
of  commercial  advantages  between  communities  which 
have  no  apparent  connection  with  one  another. 

If,  for  example,  the  Chesapeake  &  Ohio,  by  fixing  its 
competitive  rates  from  western  points  at  a  very  low  figure, 
can  get  a  portion  of  the  trafific  which  would  otherwise 
pass  over  the  trunk  lines  north  of  the  Ohio  and  Poto- 
mac rivers, — and  increases  its  net  earnings  by  doing  so, — 
it  can  to  that  extent  reduce  its  local  charges.  And  so  the 
profits  of  that  traf^c  which  would  else  go  to  other  com- 
panies, and  enure  to  the  benefit  of  the  communities  which 
they  serve,  in  effecting  a  general  reduction  of  transporta- 
tion charges  along  their  lines,  is  diverted  to  the  C.  &  O., 
and  should  enure  to  the  benefit  of  the  local  communities 
served  by  the  latter,  by  making  possible  a  reduction  of 
local  charges. 

A  singular,  and  in  some  respects  beneficial,  result 
of  low  long-haul  rates  is  the  introduction  of  competi- 
tion between  the  manufactures  or  other  products  of 
different  regions  or  communities  where  otherwise  mon- 
opoly might  prevail.  This  not  only  effects  a  reduction 
of  prices  to  the  consumers,  but  frequently  enables  a 
selection  to  be  made  between  different  varieties  of  the 


BENEFIT  TO   LOCAL    COMMUNITIES.  12/ 

same  general  class  of  articles,  according  as  the  style  of 
manufacture  and  class  of  work  may  differ  in  one  place 
from  another.  For  example,  wagons  made  in  Nashville, 
Tennessee,  may  be  sold  in  Racine,  Wisconsin,  and  the 
Racine-made  wagon  may  be  sold  in  Tennessee.'  The 
products  of  southern  and  eastern  factories  may  be  laid 
down  in  competition  with  those  of  northern  and  western 
factories,  at  the  very  doors  of  the  latter,  and  vice  versa. 

To  accomplish  this  result,  the  transportation  of  any 
commodity  over  a  long  distance,  and  into  the  territory  of 
a  competitive  commodity,  must  usually  be  at  a  very  low 
rate,  and  is  probably  often  less  than  the  charge  for  a 
shorter  distance  over  the  same  line  and  in  the  same  direc- 
tion. The  justification  of  the  practice,  where  such  is  the 
case,  must  depend  upon  the  principles  just  discussed.  It 
is  an  example  of  competitive  trafific.  And  it  is,  as  before 
remarked,  one  of  the  most  important  functions  of  public 
railway  regulation,  to  see  to  it  that  local  communities, 
where  competition  does  not  prevail,  receive  the  benefit 
of  lower  rates,  to  which  they  are  entitled  as  the  net  earn- 
ings from  competitive  traffic  are  more  and  more  increased. 

From  the  foregoing  analysis  it  may  perhaps  be  inferred 
that  the  railroad  companies,  by  applying  the  principles 
there  laid  down,  will  always,  when  called  to  account,  be 
able  to  justify  the  unpopular  and  apparently  unreason- 
able practice  of  charging  more  for  the  shorter  than  for 
the  longer  transportation  over  the  same  line.     No  doubt, 

'  See  vol.  i.,  Interstate  Com.  Reports,  p.  224  (testimony). 


128  PUBLIC   REGULATION   OF  RAILWAYS. 

in  very  many  cases  the  practice  may  be  justified, — at 
least  to  a  great  extent.  But  it  is  equally  certain  that  the 
practice  is  frequently  carried  to  an  unwarranted  and  un- 
justifiable extreme  ;  as,  for  example,  where  the  inequality 
between  the  long-  and  short-haul  rate  is  such  that  freights 
can  be  carried  from  the  original  point  of  shipment,  away 
from  their  destination,  to  a  competitive  point,  and  then 
shipped  back  again,  through  the  starting-point,  to  ultimate 
destination.' 

It  is  also  undoubtedly  a  fact  that  competition  is  often 
carried  to  an  extent  which  the  exigencies  of  the  case  do 
not  really  warrant,  as  in  the  case  of  wars  of  rates,  so  com- 
mon among  competing  lines. 

In  the  heat  of  these  conflicts  transportation  charges  be- 
tween competitive  points  are  reduced  to  figures  which  are 
astonishingly  and  sometimes  ruinously  low.  But  in  the 
absence  of  specific  legislation  to  the  contrary,  the  business 
of  intermediate  places  is  granted  no  reduction,  and  conse- 
quently suffers  the  most  serious  disadvantage.  Where 
all  the  rivals  are  equally  responsible  for  the  existence  of 
hostilities,  it  may  be  well  enough  to  punish,  and,  as  far  as 
possible,  to  curb  them  all,  by  the  application  of  the  long- 
and  short-haul  rule.  But  the  existence  and  strict  enforce- 
ment of  a  law  forbidding  a  greater  charge  for  the  shorter 
than  the  longer  transportation  has  not  apparently  oper- 
ated in  any  great  degree  to  prevent  rate  wars  between 
competing  lines. 

'  See  1st  Interstate  Com.  Reports,  p.  io8  (testimony). 


CUT  RATES.  129 

And  it  may  happen  that  a  single  line  will  recklessly  (or 
perhaps  maliciously)  institute  a  cut  of  rates  which  its  more 
conservative  rivals  are  compelled,  however  reluctantly, 
to  follow,  or  else  to  lose  considerable  business  to  which 
their  situation  justly  entitles  them. 

Under  these  circumstances,  to  punish  all  for  the  mis- 
conduct or  folly  of  one,  seems  hard.  On  the  other  hand, 
the  protection  of  the  public  against  unnecessary  discrimi- 
nation should  certainly  be  paramount  to  the  protection  of 
rival  carriers  against  each  other.  To  protect  the  public 
without  doing  injustice  to  the  companies,  the  long-and- 
short-haul  law  should  be  coupled  with  authority  in  a  com- 
mission to  see  that  no  carrier  shall  make  unreasonably  low 
rates  at  competitive  points.  Not  only  in  such  flagrant 
cases  as  have  just  been  suggested,  is  public  intervention 
proper  and  necessary  to  prevent  the  perpetration  of  in- 
justice and  wrong,  but  in  less  glaring  instances  it  may 
perhaps  be  advantageously  applied.  For  it  seems  to  be 
the  case  that  railroad  managers — owing  to  their  engross- 
ment in  the  effort  to  secure  competitive  business — fre- 
quently neglect  the  interests  of  the  local  communities, 
which  they  regard  as  peculiarly  their  own  property.  Ex- 
perience has  shown  that  reduction  of  local  charges  often 
so  increases  the  volume  of  local  trafific  as  to  result  in  an 
ultimate  increase  of  net  earnings  from  that  source.  And 
there  are  instances  where  roads,  cut  off  from  their  through 
trafific  by  hostile  combinations,  have  turned  their  attention 
to  developing  and  fostering  the  interests  of  their  local 


I30  PUBLIC  REGULATION  OF  RAILWAYS. 

communities,  with  results  of  the  most  beneficial  character 
to  all  concerned. 

For  a  time  this  policy  may  prove  unprofitable,  or  may 
be  attended  with  actual  loss,  but  it  has  seldom  failed  to 
bring  its  reward,  not  only  in  the  shape  of  increased  net 
revenues,  but  by  establishing  with  patrons  of  the  road 
relations  of  cordiality  and  a  sense  of  mutual  interest  and 
benefit,  in  place  of  the  enmity  and  sense  of  injury  which 
an  apparent  disregard  of  the  local  interests  has  so  fre- 
quently engendered. 

Another  kind  of  discrimination  between  localities  which 
may  be  briefly  noticed  here,  is  what  is  known  as  the  "  re- 
billing  privilege."  '  This  consists  in  allowing  to  the  job- 
bers of  a  city  or  town  which  the  railway  chooses  to  make 
a  distributing  point,  the  right  to  forward  to  their  custom- 
ers in  other  places  consignments  which  the  jobbers  have 
first  received,  at  the  same  rates  as  would  have  been 
charged  had  the  shipment  been  in  the  first  instance  direct 
from  the  place  of  consignment  to  ultimate  destination. 
That  is,  the  sum  of  the  charges  for  the  two  shipments — 
1st,  from  the  original  consignor  to  the  jobber  in  the  fav- 
ored town,  and,  2d,  from  that  town  to  the  consignee  of 
the  jobber— is  only  what  the  charge  would  have  been  had 
there  been  a  single  shipment  from  the  first  consignor  to 
the  last  consignee. 

A  city  enjoying  this  privilege  evidently  has  a  great  ad- 
vantage in  the  distribution  of  freights  over  a  rival  city  or 

'  See  testimony,  Cullom  Committee,  p.  1435. 


MILLING  IN   TRANSIT.  I31 

town  from  which  the  regular  local  rates  are  charged  to 
points  in  adjacent  territory,  upon  similar  consignments, 
forwarded  under  similar  circumstances.  The  charges  for 
the  two  shipments  would  generally,  of  course,  aggregate 
considerably  more  than  the  charge  for  the  single  through 
shipment. 

The  "  milling  in  transit "  system  which  prevails  largely 
in  the  northwest,  and  to  some  extent  elsewhere,  involves 
the'same  principle,  and  confers  a  similar  advantage.  This 
consists  in  allowing  to  milling  establishments  located  on 
the  line  of  a  road  between  the  grain-producing  regions 
and  the  flour-markets,  the  privilege  of  bringing  their 
wheat  to  the  mills,  converting  it  into  flour,  and  forwarding 
the  flour  to  market,  at  the  same  rate — or  nearly  the  same 
— as  is  charged  for  carrying  the  wheat  direct  from  place 
of  production  to  place  of  consumption.  While  the  same 
right  is  granted  to  all  milling  towns,  and  all  establish- 
ments along  the  line,  this  practice  is  perhaps  not  objec- 
tionable. But  where  the  privilege  is  allowed  to  some 
places  or  persons,  to  the  exclusion  of  others,  it  constitutes 
an  unjustifiable  and  ruinous  discrimination. 


CHAPTER   VI. 

Personal  Discriminations — Resulti?ig  from  Excessive  Competition; 
from  Supposed  Advantages  to  Accrue  to  the  Railroads 
Therefrom  ;  frotn  Mere  Favoritism — Never  'yustifiahle — 
Distinguished  from  Local  Discriminations — Difficulty  of 
Detection — The  Pooling  System — Differential  Pates — Un- 
necessary Railroad  Building — Division  of  Territory — Consol- 
idations— Discrimination  between  Different  Kifids  of  Traffic, 
or  Classification  of  Freight —  Value  and  Risk,  and  Not  Cost 
of  Service,  the  Basis  of  Classificatioti — Necessity  to  the  Pub- 
lic Welfare  of  the  Adoption  of  this  Basis — Abuses. 

Another  evil  that  gradually  grew  and  became  incor- 
porated into  the  operation  of  railroads,  is  that  of  discrim- 
ination between  individuals  in  the  prices  charged  for 
transportation,  and  in  facilities  afforded.  These  personal 
discriminations,  though  not  wholly  confined  to  competi- 
tive points,  were  largely  developed  by  the  struggle  be- 
tween railroads  for  competitive  business.  In  many  cases, 
however,  they  appear  to  be  entirely  arbitrary.  For  in- 
stance, it  was  proven  before  the  Hepburn  Committee,  that 
the  New  York  Central  Railroad  gave  to  one  shipper  a  rate 
of  ten  cents  a  hundred  from  New  York  to  Syracuse,  while 
other  shippers  were  charged  rates  varying  from  sixteen  to 
thirty  cents  a  hundred  for  the  same  service.     Discrimina- 

133 


REBATES.  133 

tions  of  this  sort  are  usually  effected  by  means  of  rebates 
or  drawbacks  on  the  regular  (or  open)  rates,  and  at  com- 
peting points  are  (or  were)  almost  universally  practised  by 
railroad  companies  in  favor  of  large  shippers. 

The  great  corporations,  in  order  to  secure  the  business, 
vie  with  one  another  in  giving  these  rebates  (which,  as  a 
rule,  is  secretly  done),  until  finally  the  evil  culminates  in 
an  open  and  furious  war  of  rates  over  competitive  busi- 
ness. "  Before  the  Southwestern  Railroad  Association 
was  formed,  the  several  roads  extending  from  Chicago  and 
St.  Louis,  and  other  Mississippi  River  points  to  Kansas 
City,  Leavenworth,  Atchison,  and  St.  Joseph,  indulged  in 
frequent  struggles  for  the  competitive  traffic,  the  inevitable 
result  of  which  was  that  the  published  tariff  was  disre- 
garded, and  special  or  contract  rates  became  the  rule. 
Thus,  while  the  tariff  from  Chicago  to  Kansas  City,  on  the 
first  four  classes  (of  freight)  was  90,  70,  50,  and  30  cents 
per  hundred  pounds  respectively,  large  shippers  had  con- 
tracts at  one  half  the  rates  above-named,  while  a  few  se- 
cured contracts  at  even  less  than  the  rates  last  described. 
For  example,  a  merchant  might  think  he  has  done  well  to 
secure  a  first-class  rate  of  45  cents  a  hundred  from  Chicago 
to  Kansas  City,  and  30  cents  from  St.  Louis,  until  he 
learned  incidentally  that  his  rival  in  the  same  trade  had 
obtained  rates  10  cents  per  hundred  weight  lower.  .  .  . 
Under  such  circumstances,  none  but  the  unwary  paid 
tariff  rates.  The  alert  shippers — and  the  large  ones  come 
under  that  head — were  shrewd  enough  to  work  one  road 


134  PUBLIC  REGULATION  OF  RAILWAYS. 

against  another,  exciting  their  jealousies  and  suspicions, 
until  those  having  freight  to  forward  were  able  to  name 
the  price  at  which  it  should  be  carried."  '  In  the  graphic 
language  of  Mr.  Haines,  a  prominent  southern  railroad 
manager :  "  This  system  went  on  from  bad  to  worse, 
centering  the  business  of  competitive  points  in  fewer 
hands,  drawing  the  business  of  neighboring  stations  to 
competitive  points,  and  rendering  it  impracticable  for  a 
man  with  small  capital  to  establish  himself  in  business 
under  such  disadvantages.  .  .  .  The  railroad  mana- 
gers no  longer  controlled  their  own  business.  Under  the 
threat  of  losing  business  they  were  forced  to  make  con- 
cessions which  they  knew  were  wrong.  They  were  an- 
noyed by  applications  which  it  was  impolitic  to  refuse, 
and  met  with  suspicion  and  treachery  from  the  very  men 
who  were  being  made  rich  by  rebates,  and  yet  feared  that 
some  one  else  might  be  getting  better  rates."  ^  The  situ- 
ation resulting  from  competition  between  railroads  has 
been  described  by  Mr.  Adams,  whose  experience  formerly 
as  head  of  the  Massachusetts  Railroad  Commission,  and 
now  as  head  of  the  Union  Pacific  Railroad  Company, 
entitles  his  utterances  to  great  respect,  as  follows :  "  Be- 
sides all  this,  however,  competition  led  to  favoritism  of 
the  grossest  character.  Men  or  business  firms  whose  ship- 
ments by  rail  were  large  could  command  their  own  terms, 
as  compared  to  those  whose  business  was  small.   The  most 

'  J.  W.  Midgley  in  Appendix  to  Rept.  of  Cullom  Com.,  p.  226. 
■Id.,  p.  132. 


IVA/?S  OF  RATES.  1 35 

irritating  as  well  as  wrongful  inequalities  were  thus  made 
common  all  over  the  land.  Every  local  settlement  and  every 
secluded  farmer,  saw  other  settlements  and  other  farmers 
more  fortunately  placed,  whose  consequent  prosperity 
seemed  to  make  their  own  ruin  a  question  of  time.  Place 
to  place,  or  man  to  man,  they  might  compete ;  but  where 
the  weight  of  the  railroad  was  flung  into  one  scale  it  was 
strange,  indeed,  if  the  other  did  not  kick  the  beam."  ' 
These  wars  of  rates  over  competitive  business  logically 
result  in  aggravation  of  discriminations  against  local  ship- 
pers. During  a  period  when  rates  on  the  former  went 
down  to  a  point  where  they  failed  to  pay  perhaps  even 
the  bare  cost  of  movement,  the  New  York  Central  Com- 
pany continued  to  pay  regular  dividends  on  stock.  That, 
it  is  said,  they  were  enabled  to  do  from  the  fact  that  while 
they  were  carrying  competitive  traffic  at  an  absolute  loss, 
they  had  such  complete  control  of  their  local  traffic  that 
they  recouped  the  losses  upon  the  former  by  charges 
upon  the  latter,  which  were  excessively  exorbitant  during 
the  same  period.^  Nor  are  these  personal  discriminations 
always  confined  to  competitive  points.  For  example, 
during  one  of  the  trunk-line  railway  wars  every  miller, 
with  one  exception,  at  Black  Rock  and  Niagara,  on  the 
New  York  Central,  had  to  close  his  mill,  being  unable  to 
get  his  flour  to  New  York  as  cheaply  as  the  millers  of 
Minneapolis,  in  the  far  west.     The  answer  given  to  the 

'  "  Railroads  :  Their  Origin  and  Problems,"  p.  125. 
'  Testimony,  Cullom  Committee,  p.  66. 


136  PUBLIC  REGULATION  OF  RAILWAYS. 

millers  who  inquired  how  it  was  that  one  of  them  alone 
could  maintain  his  commercial  existence,  was  that  that 
particular  miller  had  put  in  the  newest  machinery  and 
had  the  best-stocked  mill,  and  therefore  could  afTord  to 
undersell  his  neighbors  in  the  markets  of  New  York. 
The  confession  was,  however,  extracted  from  that  miller 
before  the  Hepburn  Committee,  that  he  had  a  special 
contract  with  the  railroad  company,  which  was  to  con- 
tinue only  on  condition  of  its  being  kept  secret,  by  which 
he  had  the  rate  on  his  flour  prorated  with  the  rate  from 
Minneapolis.  It  has  sometimes  been  claimed  that  the 
large  shipper  should  have  lower  rates  than  the  smaller 
shipper,  on  the  same  principle  that  the  wholesale  pur- 
chaser of  goods  obtains  lower  prices  than  the  retail  pur- 
chaser. But  the  best  railroad  authorities  concede  that 
where  one  or  more  entire  car-loads  are  shipped,  the  price 
should  be  proportioned  to  the  quantity.  And  it  has  been 
strongly  argued  in  favor  of  commercial  cities,  anxious  to 
extend  their  retail  trade,  that  provided  the  car  be  loaded 
to  its  capacity,  and  all  its  contents  destined  to  the  same 
point,  car-load  rates  should  be  given,  though  the  contents 
are  consigned  to  different  persons.'  The  latter  proposi- 
tion is  partially  admitted,  and  the  former  is  established 
by  the  testimony  of  Albert  Fink,  the  head  of  the  Trunk 
Line  Association,  before  the  Hepburn  Committee,  in  the 
following  language  : 

"  In  the  case  of  shipments  on  railroads  in  less  than  car- 

'  Testimony,  Senate  Committee,  p.  872,  etc. 


SMALL  AND  LARGE   SHIPMENTS.  1 37 

loads,  the  cost  will  be  greater  than  full  car-load  shipments 
— not  always,  but  as  a  rule.  Cars  cannot  be  fully  loaded 
when  a  number  of  small  shipments  are  made,  which  have 
to  be  unloaded  at  different  stations.  After  unloading  one 
shipment  at  an  intermediate  station,  the  train  has  to  pro- 
ceed with  the  smaller  load,  but  without  reducing  expenses 
in  proportion.  It  is  therefore  proper  that  the  shipper 
should  pay  the  additional  cost.  There  is  good  ground 
for  discriminating  between  small  and  large  shipments. 
But  where  shipments  are  made  by  the  car-load,  where  it  is 
merely  a  question  of  one  or  more  car-loads,  no  additional 
cost  is  incurred  by  the  railroad  company.  Whether  these 
shipments  are  made  by  one  or  by  many  shippers,  it  costs 
the  same.  It  costs  no  more  to  ship  ten  car-loads  of 
freight  between  two  stations,  whether  they  belong  to  one 
shipper  or  to  ten  shippers ;  whether  one  man  ships  ten 
car-loads,  or  ten  men  ship  one  car-load  each.  There  is 
no  ground  for  discriminating  in  favor  of  the  large  shipper. 
Any  discrimination  made  in  his  favor  is  entirely  arbitrary. 
There  is  no  rule,  no  principle,  on  which  it  can  be  estab- 
lished or  defended.  All  arbitrary  discrimination  works 
injustice  to  others.  Take  a  flour-mill  producing  ten  car- 
loads of  flour  a  day,  and  alongside  of  it  at  the  same  sta- 
tion, a  mill  producing  only  a  car-load.  The  railroad 
company  decides  that  it  gives  to  the  larger  mill  a  rebate 
of  twenty-five  cents  a  barrel.  This  of  itself  constitutes 
a  fair  profit.  The  large  mill  can  undersell  the  small  mill 
in  any  market  in  which  they  are  competitors.     It  can  sell 


138  PUBLIC  REGULATION  OF  RAILWAYS. 

at  cost  and  make  twenty-five  cents  a  barrel,  while  the 
other  mill,  if  it  wants  to  sell,  must  sell  without  any  profit 
at  all.  This  leads  to  the  breaking  up  of  the  small  establish- 
ment, and  the  railroad  is  the  instrument  through  which  it 
is  accomplished." 

That  the  railroad  (a  public  highway)  should  thus  be 
made  the  instrument  to  build  up  one  individual  and  break 
down  another,  is  a  thing  never  contemplated  and  not  to 
be  tolerated.  Of  course  there  must  be  instances  where 
the  cost  of  service  is  so  much  greater  in  proportion,  in 
case  of  the  small  shipment  than  in  that  of  the  large,  that 
a  larger  proportionate  charge  for  the  small  shipment 
would  be  perfectly  justifiable ;  as  where  a  single  animal  is 
shipped  in  a  car  to  itself.  Here  the  cost  to  the  railroad 
is  but  little  less  than  the  cost  of  a  fully  loaded  car  would 
be.  In  fact,  as  will  be  shown  in  subsequent  pages,  a  lesser 
charge  proportionately  on  car-loads  is  generally  proper. 
But  where  several  small  shipments  of  the  same  character 
of  freight,  all  destined  to  the  same  point,  though  perhaps 
consigned  from  and  to  as  many  different  persons,  can  by 
judicious  management  be  united  in  a  single  car-load,  the 
additional  cost  would  not  be  sufficient  to  warrant  an 
additional  charge.  Some  sacrifice  should,  if  necessary,  be 
made  by  the  carrier,  to  secure  equality  between  shippers. 
Where,  as  is  sometimes  the  case,  a  rebate  or  other  conces- 
sion is  made  to  a  large  shipper  out  of  all  proportion  to 
the  lesser  cost  of  service,  the  practice  is  still  more  unjus- 
tifiable.    Where  the  concession  is  made  on  purely  personal 


INEQUALITIES.  139 

grounds,  no  pretext  of  excuse  can  be  given  for  it.  But  it 
is  sometimes  sought  to  be  justified  on  the  ground  that  a 
greater  aggregate  volume  of  traffic  can  be  obtained  by 
concessions  to  large  shippers,  and  the  revenues  of  the 
company  thus  increased. 

Whether  this  be  the  fact  or  not,  it  does  not  justify  the 
practice.  It  still  results  in  crushing  out  the  smaller  ship- 
per. It  bears  no  analogy  to  the  practice  of  charging  more 
for  the  short  than  for  the  long  haul,  which,  as  has  been 
shown,  is,  under  some  circumstances  and  conditions,  jus- 
tifiable. 

In  the  latter  case,  it  is  true,  the  local  point  suffers  from 
the  unequal  position  in  which  it  is  placed,  but  the  inequal- 
ity results,  not  from  the  voluntary  action  of  the  railroad 
company,  but  from  the  existence  of  other  routes  of  trans- 
portation. 

It  exists  independently  of  the  railroad,  and  the  latter 
simply  takes  things  as  it  finds  them  and  makes  the  best 
of  them.  The  inequality  of  the  local  point  is  not  thereby 
increased,  and  may  be  diminished.  But  the  inequality  in 
favor  of  the  larger  shipper  arises  from  the  voluntary  act 
of  the  railroad  company,  and  can  only  result  in  detriment 
to  the  small  shipper.  There  is  no  extraneous  compulsion 
which  forces  the  railroad  into  the  practice,  as  there  is  in 
the  case  of  the  long  and  short  haul,  and  to  create  this 
inequality  for  the  purpose  merely  of  increasing  revenues, 
is  to  rob  the  railroad  of  the  character  of  a  public  highway. 

The  most  flagrant  and  notorious  instance  of  discrimina- 


140  PUBLIC  REGULATION  OF  RAILWAYS. 

tion  between  shippers  is  that  long  practised  by  the  lead- 
ing railroads  of  the  country  in  favor  of  the  Standard  Oil 
Company.  It  commenced  at  a  time  when  the  struggle 
for  competitive  business  between  the  trunk  lines  was  unu- 
sually violent  and  almost  incessant.  Each  railroad  com- 
pany vied  with  the  others  in  offering  the  utmost  conces- 
sions to  secure  the  enormous  and  valuable  freight  of  the 
Standard  Company. 

Finally  an  agreement  was  entered  into  between  the 
Standard  and  the  principal  competing  roads,  whereby  in 
consideration  of  a  large  concession  made  by  the  carrying 
companies  in  the  rates  for  transporting  the  shipments  of 
the  Standard  Company,  the  latter  undertook  to  apportion 
its  freight  among  the  several  competitors,  that  each  might 
have  a  share.  This  seemed  better  for  the  transportation 
companies  than  the  existence  of  constant  and  costly  war- 
fare over  traffic  which  perhaps  was  frequently  carried  at 
less  than  cost.  At  the  same  time  it  gave  the  Standard 
such  an  advantage  over  all  competitors  as  enabled  it  to 
monopolize  the  vast  proportion  of  the  oil-refining  business 
of  the  country.  In  the  space  of  less  than  two  years  the 
Standard  is  said  to  have  received,  in  the  shape  of  rebates 
from  the  railway  companies,  no  less  than  ten  million  dol- 
lars.' Finally  its  resources  became  so  great,  and  its  control 
over  the  petroleum  product  so  complete,  that  it  assumed, 
successfully,  to  dictate  its  own  terms  for  the  transporta- 

'  See  "  The  Railways  and  the  Republic,"  ch.  iii.,  entitled  "  The  History 
of  a  Commercial  Crime." 


INJURIOUS  DISCRIMINATIONS.  I4I 

tion  of  its  oil.  In  one  instance  it  went  so  far,  under 
threat  of  withdrawing  its  business  from  a  railroad  com- 
pany, as  to  demand  that  the  latter  should  carry  its  oil  at 
ten  cents  per  barrel,  should  charge  all  other  shippers 
thirty-five  cents  per  barrel,  and  should  pay  the  Standard 
twenty-five  cents  per  barrel  of  the  amount  received  from 
other  shippers  !  (See  Report  of  Cullom  Committee,  p. 
199.) 

Discrimination  of  this  kind^that  is,  between  individ- 
uals similarly  situated — is  necessarily  unjust,  and  should 
be  strictly  prohibited  by  law,  regardless  of  whether  the 
revenues  of  the  road  will  be  injuriously  affected  or  not. 

Equality  of  rights  to  every  member  of  the  community 
should  be  paramount  to  the  profits  of  the  carrier.  But 
this  species  of  discrimination  assumes  various  disguises 
where  there  is  legislation  forbidding  it,  and  the  railroad 
companies  choose  to  obey  the  letter  of  the  law  and  yet 
violate  its  spirit.  As  said  by  Mr.  Fink,  the  discrimination 
can  be  made  in  a  thousand  different  forms.  "  It  may  be 
made  through  reductions  in  the  weight,  charging  for  less 
than  the  actual  weight,  or  by  a  donation  to  a  shipper.  If 
he  ships  by  a  line  for  a  year,  and  he  has  been  a  very  good 
customer,  the  company  can  make  him  a  Christmas  gift. 
And  so  the  law  may  be  evaded  in  a  thousand  ways.  It  is 
almost  impossible  to  discover  these  evasions,  and  you  can- 
not punish  them  before  you  discover  them."  ' 

The  practice  of  misrepresenting  the  weight  or  the  char- 

'  Testimony,  Cullom  Committee,  p.  122. 


142  PUBLIC  REGULATION  OF  RAILWAYS. 

acter  of  goods  to  be  forwarded  over  railroads  has  recently 
attracted  considerable  attention. 

"  This  practice  has  been  in  operation  for  a  long  time, 
but  since  the  enactment  of  the  Interstate  Commerce  law 
it  has  greatly  increased,  and  has,  in  a  great  measure,  taken 
the  place  of  the  payment  of  rebates.  .  .  .  There  are 
two  distinct  features  of  this  practice  to  be  noted:  i. 
When  the  motive  of  the  shipper  is  simply  to  cheat  the 
railroad  companies.  ...  2.  When  freight  is  under- 
billed,  or  the  character  of  goods  misrepresented,  by  an 
understanding,  direct  or  implied  with  the  carriers,  to  se- 
cure the  business  of  certain  shippers  in  competition  with 
other  carriers  ; — thus  favoring  one  shipper  as  against  an- 
other. ...  It  may  be  said  that  so  far  as  the  railroads 
themselves  are  concerned,  they  are  able  to  protect  them- 
selves against  this  misrepresentation  by  examining  and 
weighing  all  goods.  This  is  true  to  a  certain  extent.  .  .  . 
But  if  it  were  practicable  to  weigh  and  examine  freights 
at  all  points,  and  secure  a  proper  check,  another  dif^culty 
would  be  encountered,  namely  :  there  are  always  some 
roads  which  will  not  join  their  competitors  in  adopting  a 
system  of  weighing  and  inspection.  While  such  roads 
are  willing  that  other  roads  should  exercise  a  strict  super- 
vision over  shipments,  they,  in  order  to  secure  the  good- 
will of  the  shippers  and  increased  traffic,  refuse  to  adopt 
the  same  measures.  Consequently,  the  other  competing 
roads  have  to  do  likewise,  or  go  out  of  the  business."  * 

'  See  letter  of  Albert  Fink  to  Senator  Cullom  of  March  15,  1888. — "  Inter- 
state Commerce  Debate,  in  50th  Congress,"  p.  24. 


UNDERBILLTNG.  1 43 

The  practice  of  underbilling  has  been  thoroughly  ex- 
amined by  the  Interstate  Commerce  Commission,  and 
its  unfairness  and  injurious  results  fully  explained.'  A 
common  method  of  evading  a  law  against  rebates  is  thus 
described  by  Mr.  Charles  Francis  Adams,  Jr.  :  "  It  is 
what  is  known  as  the  free-pass  system.  .  .  .  There 
has  been  no  book  rebate  given  in  that  case,  and  no 
drawback  paid.  Nothing  can  be  found  out.  .  .  .  The 
extent  to  which  this  abuse  has  grown  is  very  alarming."  ' 
Discriminations  have  also  frequently  been  accomplished 
under  the  guise  of  paying  commissions  to  agents  for  pro- 
curing freights  by  solicitation, — the  agents  dividing  com- 
missions with  the  shippers.  The  device  for  securing 
business  by  paying  commissions  to  agents  is  practised 
more  generally  in  passenger  traflfic,  and  has  at  times 
been  carried  to  the  verge  of  a  public  scandal.  But 
there  is  reason  to  believe  that  it  has  been  largely 
availed  of  by  some  roads  in  the  freight  department,  and 
though  the  agent  may  be  required  to  certify  that  he  has 
not  divided  commissions  with  the  shippers,  a  strong  sus- 
picion, to  say  the  least,  may  well  be  entertained  that  this 
is  frequently  done.  Where,  as  is  not  infrequently  the 
case,  heavy  shippers  of  some  peculiar  product  or  com- 
modity, requiring  special  kinds  of  cars  for  the  safest  and 
most  convenient  transportation,  own  the  cars  in  which 
their  freight  is  carried,  and  the  railway  companies  pay  to 
the  owners  a  mileage  or  per  diem  for  their  use,  it  is  easy 

'  2d  Report  of  Interstate  Commerce  Commission,  p.  813. 
*  Testimony,  Cullom  Committee,  pp.  1218  and  1362. 


144  PUBLIC  REGULATION'  OF  RAILWAYS. 

to  see  that  an  unjust  discrimination,  in  favor  of  or  between 
such  car  owners,  may  be  effected  by  varying  the  amount 
of  mileage  or  per  diem  paid  to  different  shippers.  The 
charge  for  transportation  may  be  the  same  to  each  of  two 
shippers  of  dressed  meat  or  petroleum,  but  if  one  of  them 
is  allowed  one  cent  per  mile  for  his  car,  and  the  other  but 
three  fourths  of  one  cent,  the  discrimination  is  as  plain 
and  as  unjust  as  if  it  were  upon  the  freight  itself. 

Railroad  companies  may  sometimes  get  an  ample  return 
for  special  favors  to  shippers,  in  the  aid  afforded  by  the 
latter  to  prevent  legislation  directed  against  unpopular 
railroad  practices,  or  intended  to  subject  them  more  com- 
pletely to  public  regulation. 

Legislation  of  this  kind,  it  is  asserted,  was  defeated  in 
New  York  by  a  combination  between  the  railroad  com- 
panies and  their  favored  shippers."  Instances  of  this  sort 
occurring  in  their  own  experience  will  suggest  themselves 
to  those  who  have  had  part  in  such  legislative  attempts. 

The  railroads  themselves,  as  well  as  shippers,  have  suf- 
fered— even  to  bankruptcy,  often — by  the  fierceness  of  the 
competition,  and  the  consequent  reduction  of  rates  to  and 
from  competing  points,  frequently  to  merely  nominal  fig- 
ures. They  have  sought  to  remedy  the  evil  by  devising 
the"  pooling  system^  This  may  be  briefly  described  as  the 
result  of  a  combination  among  the  railroads  to  maintain 
rates  at  competitive  points,  for  the  pool  never  embraces 
local  trafific.     The  original  agreements  among  the  com- 

'  Testimony,  Cullom  Committee,  p.  292. 


THE  POOLING  SYSTEM.  I45 

panics  were  simply  for  the  maintenance  of  rates,  and  pro- 
vided no  means  of  enforcing  the  obedience  of  the  parties 
to  the  agreement.  And  such  agreements  have  long  been 
and  are  still  in  successful  operation,  where  the  number  of 
competing  lines  and  of  competitive  points  are  compara- 
tively few.  An  example  is  the  "  Associated  Railways  of 
Virginia  and  the  Carolinas,"  whose  object  is  the  mainte- 
nance of  agreed  rates  at  competitive  points,  without  any 
pool,  allowing  the  traffic  to  find  its  own  channels.'  But, 
as  the  law  discountenances  combinations  of  this  character, 
as  being  in  restraint  of  competition  and  against  its  own 
policy,  the  courts  would  not  enforce  compliance  with  these 
agreements,  and  consequently,  in  most  cases,  they  were 
violated  wherever  the  immediate  interests  of  any  of  the 
parties  seemed  to  make  the  violation  advantageous.  The 
multiplicity  of  subordinate  agents  of  the  different  com- 
peting roads  and  their  connections  forming  "through  fast 
freight  lines,"  each  striving  to  secure  his  "  share  of  the 
business  "  for  his  particular  line,  rendered  the  maintenance 
of  rates,  under  a  simple  agreement  between  the  principal 
officers  of  the  road,  practically  impossible.''  It  was  ob- 
vious that  these  agreements  must  be  maintained,  however, 
to  prevent  ruinous  rate  wars,  and  hence  arose  the  neces- 
sity of  devising  some  means  of  binding  the  parties  to 
them,  in  the  absence  of  any  legal  obligation. 

The  money  pool  and  the  traffic  pool  were  then  resorted 

'  Vol.  i.  Interstate  Commerce  Repts.,  p.  125. 

*  Testimony,  Cullom  Committee,  p.  1210.      App.  to  Rept.  Cullom  Com- 
mittee, p.  237.,  etc. 


146  PUBLIC  REGULATION  OF  RAILWAYS. 

to.  Under  the  former  the  total  earnings  of  all  the  lines 
from  competitive  traffic  are  divided  in  certain  fixed  pro- 
portions among  all  the  members  of  the  pooling  association. 
A  joint  fund  contributed  by  the  pooled  lines,  sufficient 
for  the  purpose,  is  periodically  placed  under  the  control 
of  the  pool  commissioner,  who  applies  it  to  produce  the 
ratios  of  earnings  among  the  several  lines  contemplated 
by  the  agreement.  In  this  way  an  excess  of  earnings 
above  its  agreed  ratio  made  by  one  line,  is  transferred  by 
the  commissioner  out  of  the  funds  under  his  control  to 
the  line  or  lines  which  have  earned  less  than  their  ratio. 
There  is  thus  an  agency  outside  of  the  railroads  them- 
selves, created  by  them,  but  independent  of  any  number 
less  than  a  majority  of  them,  which  makes  equal  the  ine- 
qualities arising  in  the  independent  operation  of  the  sev- 
eral associated  roads.  And  by  this  means  the  natural 
inclination  of  any  one  road  to  increase  its  business  and 
earnings  by  cutting  under  the  others  is  to  a  large  extent 
restrained.  In  the  traffic  pool  the  whole  competitive 
traffic  itself  is  divided  among  the  members  of  the  pool 
according  to  certain  fixed  ratios.  For  this  purpose  the 
pool  commissioner  is  authorized  to  have  freight,  which  is 
brought  to  the  depot  of  one  line  for  transportation  over 
it,  transferred,  when  necessary  to  produce  the  agreed 
ratios  of  traffic,  to  the  depots  of  another  line  for  transit 
over  the  latter.  The  traffic  pool  seems  to  be  preferred 
by  railroad  managers,  as  more  effective  than  the  money 
pool,  but  the  diversion  of  freights  which  it  necessitates  has 


DIFFERENTIAL   RATES.  1 47 

given  rise  to  considerable  complaint  from  shippers.'  Cir- 
cumstances, however,  frequently  exist  which  permit  the 
diversion  of  traffic  to  be  effected  without  encountering 
this  trouble. 

The  ratio  of  earnings  or  of  tonnage  to  which  each 
road  is  entitled  in  the  pool  is  determined  by  what  it 
would  naturally  obtain,  in  the  absence  of  any  agree- 
ment and  of  any  special  inducements  ofTered  to  obtain 
the  competitive  traffic.  If  the  parties  interested  can- 
not agree  upon  this,  the  question  is  referred  to  arbitration. 
The  agreement  or  award  is  generally  made  binding  for  the 
period  of  at  least  one  year,  the  object  being  to  impart  to 
the  contract  the  element  of  permanency."  It  is  amazing 
how  nearly  the  natural  share  of  each  road  in  the  traffic  is 
thus  approximated.  This  is  evidenced  by  the  fact  that  of 
the  immense  west-bound  tonnage  from  New  York  City, 
consigned  via  the  different  lines  of  the  associated  roads  in 
1884,  only  2.6  per  cent,  was  diverted  to  produce  the 
agreed  ratios. 

Intimately  connected  with  the  subject  of  pooling  is 
that  of  differential  rates,  established  and  agreed  upon 
between  competing  carriers.  The  right  to  make 
lower  charges,  or  "  differentials,"  on  competitive  traffic 
is  conceded  by  the  more  advantageously  situated  and 
better  equipped  of  the  associated  roads  to  those  whose 
routes   are   less   desirable,    attractive,    or   efficient.       In 

'  Testimony,  Cullom  Committee,  pp.  14,  119,  \yi,etseq. 
*  Report  of  Cullom  Committee,  Appendix,  p.  227. 


148  PUBLIC  REGULATION  OF  RAILWAYS. 

this  way  the  weaker  Hnes  are  permitted,  in  a  certain 
sense,  to  "  buy  business,"  and  the  differentials  are  so 
calculated  as  to  enable  each  of  the  different  lines  to  pro- 
cure as  nearly  as  possible  its  agreed  percentage  of  traffic, 
by  direct  consignments  from  shippers,  and  without  actual 
diversion  of  freights  from  the  routes  over  which  they 
may  have  been  consigned.  This  allowance  of  differentials 
is  a  very  common  practice  among  associated  traffic  routes 
in  the  handling  of  competitive  business.  It  presents  one 
of  the  apparent  anomalies  of  railroad  practice,  which  is 
that  the  poorest  and  weakest  roads— those  least  able  to 
furnish  cheap  transportation — do  in  fact  carry  the  com- 
petitive traffic  at  the  lowest  charges,  and  to  a  certain 
extent  determine  the  charges  which  their  stronger  rivals 
shall  impose.  The  weak  lines,  in  order  to  get  a  consider- 
able volume  of  the  business,  may,  for  reasons  heretofore 
explained,  afford  to  make  very  considerable  concessions 
on  competitive  traffic ;  and  the  greater  the  concessions 
the  greater  will  be  the  amount  of  traffic  diverted  from 
the  stronger  Hnes.  So  that  to  the  latter  the  alternatives 
are  presented  of  either  losing  a  large  amount  of  business, 
or  entering  on  a  costly  rate  war,  or  conceding  a  differen- 
tial to  the  weaker  route,  by  which  it  may  secure  a  satis- 
factory share  of  the  traffic.  Differentials  may  exist 
without  pools,  the  pool  being  merely  a  method  of  main- 
taining them  in  force  as  agreed  upon. 

Another  provision   usually  contained   in   pooling  com- 
pacts is  that  against  interchanging  traffic  with  any  con- 


DISPATCH  LINES.  1 49 

necting  road  which  refuses  to  abide  by  the  rules  and 
regulations  of  the  association  in  the  matter  of  rates, 
classifications,  etc' 

The  means  adopted  for  the  rapid,  convenient,  and 
inexpensive  interchange  of  traffic  are  the  "  fast  freight 
lines  "  or  "  dispatch  lines,"  which  are  simply  associations 
of  several  independent  railroads  for  the  transportation 
of  freight,  which  in  its  transit  from  starting-point  to 
destination  must  pass  over  two  or  more  of  the  associated 
roads.  Each  road  furnishes  a  certain  number  of  cars, 
designated  as  "  line  cars,"  which  are  carried  through  over 
all  the  associated  roads,  or  such  portion  of  them  as  may 
be  necessary,  without  breaking  bulk  or  transferring  con- 
tents. Generally  each  of  the  associated  roads  furnishes 
its  own  train-men  and  motive  power  for  so  much  of  the 
transit  as  is  over  its  own  line.  Each  road  pays  a  fixed 
sum  per  mile  for  each  car  belonging  to  other  members  of 
the  association  which  passes  over  its  track.  The  car 
mileage  is  reported  to  a  central  ofifice,  where  balances 
arising  from  the  unequal  use  by  one  road  of  cars  belong- 
ing to  others  are  adjusted  and  settled.  A  common 
through  rate  is  agreed  upon  by  all  the  members  of  the 
association,  and  each  one  usually  receives  a  share  thereof 
proportioned  to  the  distance  traversed  over  its  own  line, 
compared  with  the  whole  distance  over  which  the  freight 
is  carried.  Thus  the  "  dispatch  line,"  though  composed 
of  a  number  of  different  and  independent  roads,  is,  for 
'  See  Report  of  Cullom  Committee,  Appendix,  p.  237,  et  scq. 


150  PUBLIC  REGULATION  OF  RAILWAYS. 

all  the  purposes  contemplated  in  its  organization,  prac- 
tically one  single  railroad.  Prior  to  the  establishment  of 
these  lines,  the  freight  was  transferred  at  the  terminus  of 
each  road.'  It  is  easy  to  see  the  complete  control  a  road 
terminating  at  a  great  port  may  have  over  interior  roads 
dependent  upon  it  for  an  outlet,  by  refusing  to  admit 
them  to  membership  of  a  "  dispatch  line  "  on  a  pro  rata 
basis,  and  demanding,  if  not  a  transfer  of  freight  to  its 
own  cars,  at  least  an  "  arbitrary "  compensation  for  the 
transportation  over  its  own  line. 

With  this  brief  explanation  of  the  object  and  methods 
of  railway  pools,  and  of  the  devices  for  enforcing  them, 
it  is  to  be  said  that  both  these  methods  of  pooling 
{i.  e.,  the  money  and  the  traffic  pool)  have  been  found 
effective  for  the  accomplishment  of  their  main  purpose 
— the  maintenance  of  rates  and  the  prevention  of  unjust 
discriminations — in  inverse  proportion  to  the  number  of 
roads  embraced  in  the  pool,  or  "  affiliating  "  with  the 
several  pooled  lines.  As  the  number  has  increased  it 
has  become  more  difficult  to  satisfy  different  interests, 
and  to  apply  the  artificial  and  self-imposed  restraints 
provided  to  maintain  the  organization.^  The  advocates 
of  the  pooling  system  have  accordingly  of  late  been 
arguing  in  favor  of  legalizing  the  system,  in  the  in- 
terest,  as   it   is  asserted,   of    the   general   public   as  well 

'  See  Report  on  Internal  Commerce,  U.  S.  1886.  pp.  680,  681,  where  an  in- 
teresting history  of  the  origin  of  the  "  dispatch  lines  "  is  given  by  Mr.  C. 
A.  Sindall.  Secretary  of  the  Southern  Railway  &  Steamship  Association. 

"  Testimony,  Cullom  Committee,  p.  104. 


TENDENCY  OF  POOLING.  151 

as  of  the  railroads.  Compliance  with  the  agreements 
might  then  be  judicially  enforced,  and  they  would  of 
course  be  much  more  effective.  The  primary  object  of 
pooling,  it  may  be  conceded,  has  been  to  protect  and 
promote  the  interests  of  the  railroad  companies  by  check- 
ing competition,  and  the  public  welfare  was  probably  by 
no  means  the  leading  consideration  with  the  originators 
of  the  system.  But  it  has  been  shown  how  the  manifest 
tendency  of  competition,  at  points  where  that  principle  has 
free  play,  is  to  raise  rates  at  local  or  non-competitive 
points.  In  the  absence  of  public  regulation  of  trans- 
portation, this  may  almost  be  said  to  be  the  necessary 
result.  The  instability  in  rates,  and  the  personal  dis- 
criminations— often  so  difficult  of  detection — arising  from 
unchecked  competition,  have  also  been  adverted  to. 

Pooling,  therefore,  so  long  as  the  agreements  can  be 
fairly  maintained,  manifestly  tends  to  remove  one  of  the 
principal  causes,  of  local  as  well  as  personal  discrimina- 
tions. This  is  admitted  even  by  Mr.  Sterne,  one  of  the 
best  informed  and  ablest  critics  of  railroad  practices.' 
And  it  is  hardly  fair  to  say  (what  the  common  law 
assumes)  that  the  pooling  system  is  necessarily  antago- 
nistic to  the  public  interest.  The  principle  of  the  law  which 
is  supposed  to  put  agreements  of  this  character  beyond 
its  pale,  is  based  upon  the  fear  that  extortionate  charges 
will  be  imposed  upon  the  public. 

But  the  fact  seems  to  be  that  the  strength  of  a  pool  is 

'  Testimony,  Cullom  Committee,  p.  72. 


152  PUBLIC   REGULATION    OF  RAILWAYS. 

in  a  certain  sense  a  source  of  danger  to  its  permanence.  If 
such  charges  are  imposed  by  it  as  to  swell  the  profits  in- 
ordinately, combinations  are  formed  to  share  in  them. 
Circuitous  routes  may  be  opened  to  be  closed  for  a 
consideration  ;  new  competing  lines  will  be  built  which 
must  be  taken  into  the  pool,  reducing  the  earnings  of  each 
line,  but  not  resulting  in  a  permanent  reduction  of  rates.' 
These  considerations,  as  well  as  the  limitation  usually  im- 
posed by  the  existence  of  water  competition,  would  seem 
to  be  a  powerful  conservator  of  reasonable  rates  on  the 
pooled  business.  The  pool  no  doubt  facilitates  the  im- 
position of  relatively  high  charges  on  certain  classes  of 
trafific,  as  will  be  hereafter  explained,  but  the  over- 
whelming weight  of  testimony  justifies  the  assertion 
that,  as  a  rule,  the  rates  on  pooled  traffic  have  been 
reasonable  and  equitably  adjusted,  and  been  brought 
into  comparatively  harmonious  relations  with  local  rates. 
There  is,  however,  an  instance  which,  not  very  long  ago, 
attracted  public  attention,  where  the  Union  Pacific 
Railroad  at  the  dictation  of  the  Colorado  pool,  of  which 
it  was  a  member,  deliberately  imposed  prohibitory  rates 
on  the  transportation  of  steel  rails  intended  for  the  construc- 
tion of  a  railroad  which  would  be  a  rival  and  competitor  of 
one  of  the  associated  roads.  In  the  same  connection  may 
be  mentioned  the  refusal  of  the  roads  in  the  Colorado 
pool,  to  interchange  traf^c  with  an  independent  road 
which  sought  an  outlet  for  its  business  over  some  of  the 
^  Report  of  Cullom  Committee,  Appendix,  p.  230, 


THE    COLORADO  POOL.  I  53 

pooled  roads.  The  refusal  arose  from  the  fact  that  the 
independent  road  in  question  was  a  direct  competitor  of 
one  member  of  the  pool.  Certain  litigation  arising  from 
it  has  heretofore  been  adverted  to,  and  the  power  of  the 
legislature  to  compel  the  mutual  interchange  of  traffic 
under  such  circumstances  has  been  discussed. 

This  arbitrary  conduct  of  the  Colorado  pool  illustrates 
the  necessity  of  public  regulation  of  these  associations. 
But,  on  the  whole,  the  public  benefit  derived  from 
the  pooling  system  seems  greatly  to  outweigh  the  danger 
of  public  detriment  from  its  existence.  Perhaps  so  long 
as  railroad  companies  continue  to  enjoy  an  absolute 
monopoly  of  transportation  over  their  own  lines,  so  that 
free  competition  is  restricted  in  its  operation  to  a  com- 
paratively few  favored  points,  it  may  be  worthy  of  serious 
consideration,  whether  it  would  not  be  better  to  legalize 
than  to  prohibit  pooling — taking  care  to  put  the  whole 
matter  under  strict  public  supervision  and  control.  The 
companies  would  then  be  left  comparatively  free  to  bring 
their  local  rates  into  something  like  harmony  with  the 
long-distance  rates,  and  should  they  fail  to  do  so  where 
the  needs  of  the  local  community  and  their  own  revenues 
make  it  proper  to  be  done,  then  it  is  the  function  of 
public  regulation  to  compel  it  to  be  done.  In  this  way 
legalized  railway  pooling  might  be  made  the  most  effec- 
tive aid  to  public  railway  regulation. 

The  public  encouragement  usually  given  to  the  building 
of  railroads  in  this  country,  and  the  apparent  prosperity 


154  PUBLIC  REGULATION  OF  RAILWAYS. 

of  an  existing  pool,  even  where  no  serious  and  well 
grounded  complaint  exists  against  it,  has  sometimes 
enabled  railroad  projectors  to  procure  large  sums  from 
investors  for  the  construction  of  an  additional  compe- 
ting line.  The  consequence  perhaps  may  be  heavy 
financial  losses  to  investors  in  the  new  road  which 
undertakes  an  unequal  contest  with  existing  lines,  as 
well  as  a  considerable  impairment  of  the  revenues  of 
the  latter.  A  matter  of  more  public  importance  is  the 
disturbance  of  the  business  equilibrium,  which  the  injec- 
tion of  this  new  element  into  the  situation  occasions.  The 
most  conspicuous  example  of  this  kind  of  speculative 
railroad  construction  is  the  West  Shore  road  from  New 
York  to  Buffalo.  It  is  generally  conceded  that  there  was 
little  or  no  occasion  of  public  utility  for  this  road,  for  it 
was  so  located  with  reference  to  the  New  York  Central,  as 
to  serve  almost  exactly  the  same  communities,  both  local 
and  competitive,  that  the  latter  already  served  in  an  efB- 
cient  and  acceptable  manner.  It  at  once  entered  upon 
a  career  of  reckless  competition  and  underbidding  for 
trafific,  which  the  Central  was  compelled  to  meet. 
The  action  of  the  latter  deranged  to  a  greater  or  less 
extent  the  entire  trunk-line  association.  No  public  good 
of  substantial  duration  was  accomplished  ;  on  the  con- 
trary, a  railroad  war  with  its  concomitant  evils  of  insta- 
bility in  rates  and  unjust  discrimination  was  precipitated 
upon  the  country.  The  West  Shore  soon  became  finan- 
cially wrecked,  passed  into  the  hands  of  receivers,  and, 


MULTIPLICATION  OF  RAILROADS.  I  55 

after  being  operated  for  a  number  of  years  at  an  enormous 
deficiency  below  expenses,  was  finally  absorbed  by  the 
Central  and  taken  into  the  pool.  The  result  of  the  whole 
transaction,  so  far  as  the  general  public  was  concerned,  was 
that  the  cost  of  the  West  Shore  was  added  to  the  aggre- 
gate capitalization  upon  which  the  pooled  lines  sought  to 
make  a  profit.  No  new  traffic  of  consequence  was  reached, 
and  the  manifest  tendency  must  have  been  to  increase 
rates,  wherever  such  a  course  would  result  in  increased 
net  earnings. 

The  best  thought  on  both  sides  of  the  railroad  ques- 
tion (as  illustrated,  for  example,  by  Mr.  Sterne  and  Mr. 
Fink)  seems  to  recognize  the  advisability  of  legislative 
inquiry  into  the  public  necessity  for  any  proposed  new 
road,  before  granting  a  charter  for  its  construction. 

In  some  jurisdictions  where  a  free  railroad  law  exists, 
and  no  special  act  of  incorporation  is  necessary,  the  unre- 
strained construction  of  railroads  has  been  carried  to  an 
injurious  length,  as  in  the  case  of  the  West  Shore.  But 
the  uselessness  of  the  proposed  new  road  for  the  accom- 
plishment of  any  public  good  should  be  very  clearly  made 
out  to  warrant  the  refusal  of  a  charter.  As  a  general 
thing,  the  more  railroads  are  multiplied,  the  greater  be- 
comes the  number  of  competing  points,  and  the  more 
uniform  and  pervasive  the  principle  of  competition.  At 
all  events,  whether  a  proposed  new  line  shall  be  built  or 
not,  is  a  question  for  determination  by  the  public,  and 
not  by  the  officials  of  existing  routes  with  which  it  will 


156  PUBLIC  REGULATION  OF  RAILWAYS. 

compete.  But  it  appears,  from  the  action  of  the  Colorado 
pool  above  noticed,  that  the  heads  of  existing  lines  some- 
times take  the  matter  into  their  own  hands.  They  would 
probably  plead  the  general  law  of  self-defence  in  justifica- 
tion of  their  action,  but  the  plea  certainly  would  not  be 
admissible. 

In  the  trunk-line  association  differentials  are  estab- 
lished between  routes  from  the  common  territory  to 
different  seaboard  cities,  as  well  as  between  directly 
competing  roads  having  both  termini  in  common.  The 
principle  of  differentials  between  cities  is  the  reverse  of 
that  between  roads.  Under  this  arrangement  the  termi- 
nal city  whose  route  to  the  common  territory  is  shortest 
and  most  advantageous  receives  a  lower  rate  than  those 
more  remotely  situated.  Thus  the  rate  from  the  West  to 
Baltimore  is  lowest,  and  that  to  Boston  highest.  This 
advantage  to  the  shortest  route  is  supposed  to  be  com- 
pensated, as  far  as  the  export  trade  is  concerned,  by  the 
superior  export  facilities  provided  at  the  termini  of  the 
longer  routes.  The  question  of  differential  rates  between 
cities  is  one  of  great  difificulty,  and  has  been  the  occasion 
of  furious  railroad  wars.  It  seems  impossible  to  satisfy 
the  claims  of  the  commercial  rivals. 

In  the  case  of  Boston,  where  the  differential  rate  is  not 
compensated  by  superior  export  facilities,  a  rebate  from 
the  regular  rate  is  allowed  on  western  products  exported 
from  that  port.  This  is  necessary  to  enable  Boston  to 
hold  its  export  trade,  which  would  otherwise  go  to  New 


ALLOTMENT  OF  PERCENTAGES.  I  57 

York — thus  cutting  off  that  much  traffic  from  the  roads 
tributary  to  Boston,  and  diverting  it  to  the  roads  tribu- 
tary to  New  York.  So  that  with  the  railroads  the  ques- 
tion is  largely  one  of  revenue  to  themselves,  not  merely 
of  favor  to  the  port.  The  importance  attached  to  this 
rebate  provision  by  the  commercial  interests  of  the  city 
of  Boston  is  shown  by  the  remarks  of  Senator  Hoar  in  the 
debates  on  the  Interstate  Commerce  Bill.* 

Under  the  pooling  principle  of  allotting  percentages  to 
the  different  associated  lines  in  accordance  with  the  share 
of  the  traffic  which  each  would  naturally  receive, — distance, 
location,  terminal  facilities,  reasonable  differentials,  etc., 
being  considered, — it  is  plain  that  there  may  be  com- 
peting lines  which  on  that  basis  would  get  none  of  the 
traffic. 

Such  a  line  may  prefer  to  keep  out  of  the  pool,  in  order 
to  obtain  by  rebates  and  by  cutting  under  the  pool  rates 
the  business  it  could  not  get  by  maintaining  them. 
Whether  or  not  a  new  competitor  shall  be  admitted  into 
a  traffic  association,  depends  on  whether  the  business  and 
revenues  of  the  latter  are  so  far  disturbed  or  diminished 
by  the  undercutting  of  the  former,  as  to  make  it  worth 
while  to  give  it  such  a  portion  of  the  tonnage  or  earnings 
as  will  afford  it  more  net  revenue  than  it  can  derive  from 
the  pursuit  of  an  independent  policy. 

Unity  of  action  among  the  stronger  lines,  it  is  said, 
enables  them  to  ignore  certain  elements  of  competition 

^  {See  Cong.  Rcc.^  1886-7,  p.  692,  et  se(j. 


158  PUBLIC  REGULATION  OF  RAILWAYS. 

which  would  otherwise  occasion  serious  disturbance.* 
But  the  constant  extension  of  railway  lines  must  from 
time  to  time  force  upon  existing  associations  the  recog- 
nition of  new  competitors.  For  instance,  the  Chesapeake 
&  Ohio,  which  was  never  a  member  of  any  of  the  pools, 
has  long  had  western  connections  in  the  country  tributary 
to  the  trunk-lines,  and  it  has  access  to  northern  and  east- 
ern cities,  via  lines  extending  north  through  Virginia,  and 
via  Newport  News,  its  tidewater  terminus.  This  road 
has  always  had  some  traffic  between  western  points  and 
northern  and  eastern  points,  which  it  must  have  secured 
by  giving  rates  considerably  lower  than  those  given  by  any 
of  the  trunk  lines  "^ ;  and  it  has  probably  made  some 
money  (/.  e.,  increased  its  net  earnings)  by  this  traffic. 
But  the  amount  of  business  diverted  from  the  trunk  lines 
has  not  heretofore  been  sufficient  to  compel  the  admission 
of  the  C.  &  O.  into  the  association.  Recently  completed 
connections  have,  however,  put  the  C.  &  O.  on  a  much 
better  footing  for  competition  than  it  has  heretofore 
occupied,  and  recently,  it  is  said,  it  has  been  formally 
recognized  as  a  member  of  the  trunk-line  association,  to 
the  extent  of  being  allowed  differentials  on  certain  por- 
tions of  the  competitive  business. 

A  method  by  which  competition  between  railroads 
may  be  prevented,  without  any  agreement  to  maintain 
rates,    which    is    the    object    and    essence    of   pooling,  is 

'  Testimony,  CuUom  Committee,  p.  751. 
"^  See  Testimony,  CuUom  Committee,  pp.  751,  752, 


COMPETITION  BETWEEN  RAILROADS.  1 59 

by  dividing  the  territory  wherein  the  competition  ex- 
ists. For  example,  when  the  Kansas  City  &  Memphis 
road  was  built,  connecting  those  cities,  it  made  con- 
nections for  a  tidewater  outlet  at  Norfolk,  Va.,  and 
began  competing  for  a  portion  of  the  seaboard  traffic 
of  the  trunk  lines.  To  put  a  stop  to  this  an  agree- 
ment was  entered  into,  in  pursuance  of  which  the  Kansas 
City  &  Memphis  withdrew  from  its  Virginia  connection, 
and  made  alliances  with  roads  reaching  the  seaboard 
further  south.  And  it  cut  itself  off  from  all  traffic  origi- 
nating north  of  the  south  line  of  Virginia  and  Kentucky 
by  charging  high  or  "  local  tariff"  rates  on  such  business. 
In  consideration  of  this  action  the  trunk  lines  cut  them- 
selves off  from  all  traffic  originating  south  of  the  same 
line  by  refusing  to  take  it  except  at  "  local  tariff  "  rates. 
The  field  was  thus  divided  between  the  competitors  by  a 
line  running  along  the  southern  boundary  of  Virginia  and 
Kentucky,  and  the  competition  was  ended.  It  is  difficult 
to  say  how  far  this  method  might  be  effectually  applied, 
under  more  complicated  conditions,  to  supersede  the 
present  pooling  system.  Where  the  competitors  are  nu- 
merous, as  in  the  case  of  the  trunk  lines  and  their  affili- 
ating roads,  and  the  competing  points  so  located  with 
respect  to  them  and  to  one  another,  as  they  are  in  the 
country  north  of  the  Ohio  River  for  example,  the  prob- 
lem would  appear  to  present  almost  insuperable  difficul- 
ties. And  these  difficulties  would  perhaps  be  even  greater 
where  the  traffic  of  a  single  city  must  necessarily  be  shared 


l6o  PUBLIC  REGULATION  OF  RAILWAYS. 

in  by  different  lines.  It  may  be,  however,  that  the  genius 
of  the  men  who  organized  the  pool  can,  if  necessary,  solve 
the  problem  of  dividing  the  field. 

The  most  effectual  of  all  means  of  destroying  competi- 
tion is  by  consolidation  of  the  competing  lines.  And 
even  where  consolidation,  by  actual  merger  or  legal 
unifying  of  the  companies,  is  forbidden,  the  same  result 
may  be  practically  accomplished  by  the  acquisition  into 
the  same  hands  of  controlling  interests  in  the  stock  of  the 
different  roads.  It  has  been  very  forcibly  suggested  that 
the  prohibition  of  pooling  tends  strongly  to  bring  about 
this  state  of  things.  For  example,  the  rail  transportation 
of  the  territory  lying  south  of  the  Ohio  and  Potomac  and 
east  of  the  Mississippi  rivers  is  done  principally  by  six  or 
seven  leading  companies.  The  stock  of  most  of  these 
companies  is  far  below  par,  and  Senator  Brown  of  Georgia 
estimates  that  $30,000,000  in  round  numbers  would  pur- 
chase a  controlling  interest  in  every  one  of  them.  "  One 
single  man  in  the  State  of  New  York  is  able  to  pay 
$30,000,000  for  the  stock,  and  control  the  whole  of  this 
vast  combination.  .  .  .  And  this  would  end  the  ne- 
cessity for  pooling.  .  .  .  No  pooling  is  neces!sary  from 
the  Potomac  to  the  Mississippi,  and  from  the  coast  to  the 
Ohio.  As  one  man  controls  the  railroads  in  the  whole  ter- 
ritory, there  would  be  perfect  harmony  in  the  management. 
In  other  words,  the  silence  of  despotism  reigns,  and  the 
monopoly  by  combination  and  consolidation  is  complete."  ' 

1  Senator  Brown,  Cong.  Rec,  1887,  p.  608, 


i 


DANGER   OF  CENTRALIZATION.  l6l 

By  the  association  of  a  very  limited  number  of  persons, 
all  dominated  by  a  single  will  and  purpose,  results  pre- 
cisely similar  to  that  depicted  by  Senator  Brown  have 
again  and  again  been  accomplished.  And  his  picture 
would  seem  to  be  highly  prophetic  of  the  future.  For 
the  manifest  tendency  of  the  railroad  transportation  sys- 
tem is  toward  centralization,  and  its  results  so  far  as 
accomplished  do  not  appear  generally  to  have  produced 
public  injury.  But  undoubtedly  danger  is  inherent  in 
such  concentration  of  wealth,  and  of  power  over  the  com- 
merce of  the  country  in  a  few  hands  ;  and  these  com- 
binations should  be  brought  into  such  relations  with 
government,  or  under  such  governmental  regulations,  as 
will  preserve  for  the  undiscriminating  benefit  of  all  the 
people,  as  far  as  may  be,  their  ever  augmenting  powers  of 
public  good. 

The  third  species  of  discrimination  in  charges  is  that 
between  different  kinds  of  freight  or  different  commodi- 
ties, and  arises  from  the  system  of  classification  of  freights. 
To  attempt  to  fix  a  separate  and  distinct  price  for  the 
transportation  of  every  one  of  the  many  hundreds  of 
articles  that  are  daily  carried  over  railroads  would  mani- 
festly involve  very  great  inconvenience.  Accordingly  the 
various  commodities  of  commerce  by  rail  have  been 
divided  or  classified  for  greater  convenience  into  a  few 
groups,  each  one  of  which  embraces  many  different  articles, 
for  the  carriage  of  which  nevertheless  the  same  charge  is 
made.     This  mode  of  making  rates  by   classification    is 


1 62  PUBLIC  REGULATION  OF  RAILWAYS. 

intended  to  be  for  the  convenience  of  the  carrier  as  well 
as  the  accommodation  of  shippers,  and  long  experience 
has  shown  that  it  is  the  best  and  most  practical  way 
of  dealing  with  the  subject.  "  In  making  up  a  class  by  this 
method,  articles  of  the  same  kind  are  usually  grouped 
together  in  the  same  class,  as  far  as  this  can  be  done ;  but 
as  the  articles  in  each  class  are  so  very  numerous,  there  is 
a  very  great  diversity  of  such  articles,  and  it  results  that 
there  are  generally  but  few  things  of  the  same  kind  that 
can  be  placed  in  one  class." 

"  As  the  freight  rates  of  a  railroad  are  laid  with  a  view 
of  obtaining  revenue  from  its  operation,  it  is  but  just  and 
fair  that  they  should  be  so  distributed  among  the  different 
articles  transported,  as  far  as  this  can  be  done,  as  to  bear 
upon  all  with  relative  equality." 

It  is  very  evident  then  that  "  after  all  a  classification  is 
but  a  means  of  arriving  at  a  rate."  ' 

In  some  cases  the  classification  is  based  upon  reasons 
which  at  once  commend  themselves  as  fair  and  satisfac- 
tory, and  though  discriminative,  cannot  be  considered 
unjust.  This  is  the  case  where  the  two  elements  of  cost  of 
service  and  risk  alone  enter  into  the  classification.  Thus 
more  must  necessarily  be  charged  for  carrying  a  ton 
of  cotton  than  a  ton  of  iron  ore,  more  for  a  car-load  of 
glass-ware  than  for  a  car-load  of  lumber,  and  more  on  a 
package  of  nitro-glycerine,  than  on  a  similar  package  of 

'  See  Pyle  vs.  E  .T.  V.  &  G.  R.  R.  Co.  i  Interstate  Commerce  Reports, 
p.  771- 


COST  OF  SERVICE.  1 63 

soap.  In  the  beginning  of  railroading  very  little  was 
known  of  the  "  cost  of  service,"  i.  <?.,  of  the  different 
elements  entering  into  the  cost  of  transporting  any  given 
article.  "  It  was  supposed  in  a  general  way  that  what  had 
been  the  rates  existing  on  post-roads  or  highways,  pretty 
well  augmented,  would  be  a  fair  rate  on  railways.  There 
was  no  system  at  all.  The  first  freight  tariffs  were  made 
because  the  sta^e  lines  or  some  other  line  made  such  and 
such  a  rate."  '  The  "  terminal  expenses  " — storing  in 
depots,  loading,  unloading,  and  handling — enter  largely 
into  the  question,  and  great  differences  arise  from  the 
weight  and  shape  of  an  article  of  freight.  Experience, 
perhaps,  gradually  taught  the  cost  of  service  in  transport- 
ing diiTerent  commodities,  with  an  approximation  at  least 
to  accuracy.  But  in  most  instances  classification  is  not 
based  solely  or  principally  on  cost  of  service  and  risk. 
Speaking  generally,  (leaving  those  elements  out  of  view,) 
it  may  be  said  that  the  classification  of  any  article  of 
freight  is  determined  by  the  ratio  which  the  cost  of  trans- 
porting bears  to  the  total  cost  to  the  consumer.  If  the 
cost  of  carrying  it  constitutes  a  large  part  of  the  ultimate 
price  of  the  article,  it  is  classed  low,  and  the  rate  is  made 
very  little  above  the  bare  expense  of  carriage.  On  the 
other  hand,  if  the  cost  of  carriage  constitutes  but  a  small 
part  of  the  ultimate  price,  the  article  is  classed  high,  and 
contributes  vastly  more  to  the  earnings  of  the  road  than 
its  ratable  share  would  be,  if  the  classification  were  based 

'  Gen.  •  Devereux  before  the  Cullom  Com.     Testimony,  p.  826. 


164  PUBLIC  REGULATION^  OF  RAILWAYS. 

on  cost  of  service  and  risk  alone.  Actual  risk  is 
usually  a  small  element  compared  with  cost  of  ser- 
vice, and  arises  from  the  dangerous  and  highly  de- 
structive, or  from  the  perishable  and  easily  destruct- 
ible, character  of  the  article,  more  than  from  its 
value.  The  classification  then,  practically,  is  usually 
based  upon  the  price  or  value  of  the  article,  or  in  other 
words,  as  frequently  expressed,  upon  "  what  the  traffic  will 
bear."  The  practice  of  classifying  freights  upon  the  basis 
of  value,  instead  of  upon  cost  of  service,  is  frequently  cited 
by  critics  of  railroad  methods  as  evidence  of  extortion. 
And  yet  it  is  plain  that  but  for  this  principle  of  classifica- 
tion, a  vast  amount  of  the  commerce  of  the  country, 
embracing  the  transportation  of  many  of  the  necessaries 
of  life  from  the  producer  to  the  consumer,  must  necessa- 
rily cease.  Many  articles  of  prime  necessity,  for  manufac- 
ture or  consumption,  such  as  coal,  grain  (for  long 
distances),  building  materials,  ores,  etc.,  will  not  bear 
transportation,  except  at  figures  so  low  that,  while  they 
may  enable  the  railroads  to  do  the  business  without  actual 
loss,  contribute  little  or  nothing  to  what  are  called  "  fixed 
expenses,"  such  as  maintenance  of  the  road,  wages,  sala- 
ries, and  interest  on  investment.  Expenses  of  maintenance, 
salaries,  and  wages  must  of  course  be  paid,  or  operations 
will  cease,  and  it  is  only  fair  that  reasonable  profits  should 
be  made  on  the  value  of  the  investment.  If  the  effort 
should  be  made  to  assess  this  low-class  traffic  with  its 
ratable    proportion    of   all    expenses    based    on    cost    of 


A    TARIFF  FOR   REVENUE.  1 65 

service,  the  result  would  simply  be  that  transportation 
of  such  traffic  would  cease.  The  consumer,  unable  to  pay 
the  cost  of  production  and  high  transportation  charges, 
both  of  which  enter  into  the  cost  of  the  article  to  him, 
would  seek  a  substitute  either  in  a  different  article  or  from 
a  different  field  of  production.  Or  if  no  substitute  can  be 
had  or  no  other  field  of  production  is  more  accessible,  then 
the  elements  entering  into  the  necessary  cost  of  living — 
that  is,  food,  fuel,  and  shelter — must  be  greatly  increased 
in  price  to  the  consumer,  while  decreased  in  price  to  the 
producer. 

Inasmuch  then  as  the  fixed  expenses  must  be  paid,  and 
as  a  vast  class  of  commodities,  which  for  the  good  of  the 
whole  public  must  be  transported,  cannot  bear  their  rata- 
ble share  of  those  expenses,  it  follows  that  charges  of 
various  degrees  above  their  ratable  share  must  be  laid  on 
those  articles  which  will  bear  such  charges.  This  is  "  char- 
ging what  the  traffic  will  bear,"  and  rightly  understood 
it  is  not  only  not  extortion,  but  entirely  justifiable 
and  necessary  to  the  public  welfare.  The  enormously 
increased  volume  of  traffic  which  follows  upon  the  policy 
of  low  rates  on  cheap  freights,  adds  largely  to  the  net 
revenues  of  the  transportation  companies  ;  and  this,  with 
them,  is  the  direct  object  had  in  view.  The  public  benefit 
resulting  from  it  is  merely  incidental.  It  is  a  case  of  "  a 
tariff  for  revenue  with  incidental  protection  "  to  the  low- 
class  traffic. 

The  use  to  which  an  article  is  to  be  put  sometimes  de- 


l66  PUBLIC  REGULATION  OF  RAILWAYS. 

termines  its  classification.  For  example,  fertilizers  are 
frequently  classed  very  low,  the  object  being  to  cheapen 
them  as  much  as  possible,  and  encourage  their  use,  in  the 
expectation  that  the  production  and  consequent  shipment 
of  commodities  of  profitable  transportation  will  be  thereby 
increased. 

On  the  same  principle,  and  with  the  same  object  in 
view,  materials  to  be  used  in  building  manufacturing 
establishments,  and  raw  material  intended  for  conversion 
into  manufactured  products,  are  on  some  roads  classed 
lower  than  the  same  articles  intended  for  other  purposes. 
Sometimes  the  manufactured  product  itself  may,  in  the 
incipiency  of  a  manufacturing  enterprise,  be  classed  very 
low,  and  be  carried  for  a  time  almost  without  profit, 
until  the  business  is  firmly  established,  and  a  new  source 
of  shipments  thus  created,  when  the  rates  may  be  raised. 

In  these  cases  revenue  to  the  railroad  is  the  prime 
object,  and  protection  to  the  favored  industry  merely  the 
incident.  But  the  same  charges  must  be  imposed  on  all 
manufactures  of  the  same  kind,  no  matter  by  whom 
produced,  else  the  discrimination  becomes  a  mere  personal 
one.  In  some  States  indeed,  as  in  Alabama,  special 
contract  rates  given  for  the  purpose  of  "  developing  indus- 
trial enterprises,"  are  expressly  sanctioned,  and  excepted 
from  the  general  anti-discrimination  law. 

Discrimination  in  charges  between  different  kinds  of 
trafific  based  upon  principles  which  have  been  above 
noticed  and  strictly  confined  to  those  principles,  is  not 


LIVE-STOCK  AND  DRESSED   MEAT.  1 67 

always  deserving  of  censure,  and  seems  frequently  to  be  a 
necessary  condition  of  railroad  transportation,  and  promo- 
tive of  the  public  good.  Yet  the  danger  of  abuse  of  these 
principles  is  very  great ;  and  there  are  other  cases  in  which 
the  practice  is  more  questionable,  both  in  its  principle  and 
in  the  consequences  which  may  result  from  it.  Classifica- 
tions are  sometimes  established  with  the  avowed  purpose  of 
protecting  some  industry,  and  not  solely  or  principally  to 
increase  the  revenues  of  the  companies.  Here  protection 
is  the  principal  object  in  view,  and  the  question  of  revenue 
is  merely  incidental.  This  is  illustrated  in  the  relative 
classifications  of  live-stock  and  dressed  meat,  which  at 
one  time  prevailed  over  the  trunk  lines  from  the  west  to 
the  seaboard.  When  the  executive  committee  of  the 
trunk-line  association  met  to  consider  this  matter,  Mr. 
Fink  distinctly  announced  that  the  question  before  them 
was  how  to  put  the  live-stock  shippers  and  the  dressed- 
meat  shippers  on  an  equal  footing  in  the  eastern  markets. 
In  other  words,  it  was  how  to  protect  the  old-established 
live-stock  business,  and  the  people  dependent  upon  or 
interested  in  it,  against  the  advantages  which  the  dressed- 
meat  business  with  its  new  processes  and  appliances  would 
otherwise  enjoy.  General  E.  P.  Alexander,  a  high 
authority  on  such  matters,  seems  to  admit,  in  his  mon- 
ograph entitled  "  Railway  Practice,"  (p.  47,)  that  the 
controlling  consideration  with  the  railway  managers,  in  the 
decision  of  that  question,  was  the  protection  of  the  live- 
stock interest,  involving,  as  it  does,  immense  investments 


r68  PUBLIC  REGULATION  OF  RAILWAYS. 

and  the  livelihood  of  thousands  of  employes.  Very 
probably  the  policy  pursued  by  the  railway  companies  in 
this  matter  was  the  best  for  the  public  interests.  Where 
two  commodities  or  kinds  of  traffic  are  commercially  com- 
petitive, that  is,  where  they  supply  the  same  wants,  or  are 
put  to  the  same  uses  by  consumers,  the  classification 
should,  in  the  interest  of  the  public  and  in  justice  to  those 
directly  interested  in  each  commodity,  be  arranged,  as  far 
as  circumstances  will  permit,  so  that  neither  commodity 
shall  be  enabled,  merely  by  reason  of  the  difference  in 
transportation  charges,  to  supplant  the  other  in  the 
markets,  and  secure  a  monopoly.  This  indeed  is  in  some 
sense  a  corollary  deducible  from  the  general  principle  of 
"  charging  what  the  traffic  will  bear  " ;  but  it  is  to  be  ob- 
served that  it  may  involve  considerations  entirely  outside 
of  the  pecuniary  interests  of  the  transportation  companies 
themselves.  The  relative  classification  of  live  stock  and 
dressed  meat  may  be  wholly  or  partially  justified  under 
the  principle  just  referred  to;  as  they  are  undoubtedly 
commodities  of  a  character  competitive  with  each  other, 
each  being  intended  to  supply  the  public  demand  for  the 
same  article  of  food. 

To  lower  the  classification  of  dressed  meat  to  any 
considerable  extent,  would  be  destructive  of  the  business 
of  shipping  beef  cattle  to  market,  would  entail  incalculable 
injury  upon  thousands  whose  living  is  involved  in  that 
business,  and  would  eventually  place  the  meat  supply  of 
the  large  cities  in  the  hands  of  a  few  capitalists,  who,  it 


FRESH-MEAT    TRUST.  1 69 

may  well  be  imagined,  would  not  be  long  in  organizing  a 
"  fresh-meat  trust,"  and  eliminating  all  competition.  The 
protection  in  this  instance  has  been  wisely  and  beneficially 
extended,  but  the  subject  protected  might  at  any  time  be 
changed,  with  disastrous  results  to  many  communities. 
It  seems  plain  that  the  question  of  protection  to  one  in- 
dustry or  another  is  one  for  the  public  and  not  for  the 
railways  to  determine.  The  purely  protective  policy  has 
very  much  the  appearance  of  an  exercise  of  powers  and 
functions  by  the  railroad  companies  wholly  beyond  the 
objects  of  their  creation.  They  were  intended  as  agencies 
of  transportation  merely ;  they  have  become  in  large 
measure  the  arbiters  of  many  of  the  most  important 
industries  in  the  country.  To  leave  the  control  of  ques- 
tions and  results  of  such  vast  public  consequence  in  their 
hands,  free  of  all  public  supervision,  would  surely  be 
perilous. 

The  difference  between  charges  on  car-loads  and  less 
than  car-load  lots  of  the  same  article  of  freight  is 
usually  effected  by  means  of  classification — the  latter  be- 
ing placed  in  a  higher  class  than  the  former.  Difference 
in  cost  of  service  is  the  principle  relied  on  to  justify  the 
difference  in  classification.  The  greater  cost  of  transport- 
ing less  than  car-load  lots  is  due  principally  to  the  fact 
that,  as  a  rule,  the  cars  cannot  be  fully  loaded,  and  the 
weight  of  paying  freight  consequently  bears  a  much  less 
ratio  to  the  total  weight  of  a  train  than  is  the  case  where 
the  shipments  are  by  the  car-load.     Estimates  have  been 


170  PUBLIC  REGULATION  OF  RAILWAYS. 

made, — which  theoretically  appear  difficult  of  impeach- 
ment,— showing  that  the  cost  of  carrying  less  than  car- 
load lots  of  freight  is  usually  at  least  double  the  cost 
of  car-loads.'  The  difference  in  charge  is  very  seldom 
proportionately  as  great,  and  the  principle  here  alluded 
to  seems  to  afford  a  sound  basis  for  the  lower  classification 
of  car-load  freight.  The  argument  in  its  favor,  which 
theoretically  appears  so  strong,  is  somewhat  weakened  in 
practice  by  the  fact  that  the  principle  is  by  no  means  uni- 
formly adhered  to  by  railroad  companies.  In  the  carriage 
of  a  great  many  commodities,  no  difference  per  hundred- 
weight is  made  between  car-loads  and  less  quantities. 
And  there  may  be  cases  where  the  difference  in  cost  is 
not  sufficient  to  justify  the  difference  in  charge,  consider- 
ing the  disadvantage  at  which  it  places  small  shippers 
compared  with  their  competitors  in  business,  who  may 
receive  the  same  character  of  consignments  in  car-load 
lots  at  the  same  place,  over  the  same  route,  and  perhaps 
from  the  same  consignor.  It  may  very  likely  happen,  too, 
that  a  greater  charge  per  hundred-weight  will  be  imposed 
for  carrying  less  than  car-loads  a  shorter  distance  than  is 
charged  for  carrying  car-loads  a  longer  distance  over  the 
same  line  in  the  same  direction,  the  shorter  being  included 
in  the  longer  distance.  This  result,  so  obnoxious  to  a 
well-known  sentiment,  cannot  perhaps  always  be  justified 
by  the  principle  of  difference  between  car-loads  and  lesser 

'  See  p.  448  et  seq.  of  testimony  before  Interstate  Com.  Com.,  in  case  of 
Thurber  ei  ah.  vs.  R.  R.  Cos. 


COMMODITY    TA/ilFFS.  I7I 

quantities.  Nor  is  the  classification  by  any  means  always 
uniform  on  all  lines  of  road,  although,  by  means  of  con- 
solidations, despatch  lines,  and  traffic  associations,  far 
greater  uniformity  has  been  introduced  than  once  pre- 
vailed. Sometimes  good  reasons  exist  for  this  lack  of 
uniformity  over  different  lines  and  in  different  sections. 
Thus,  where  any  part  of  the  country  produces  a  great 
quantity  of  any  particular  commodity,  as  the  South  does 
of  cotton,  for  example,  and  the  West  of  grain,  the  trans- 
portation companies  engaged  in  the  movement,  on  a  great 
scale,  of  the  staple  products  of  the  territory  which  they 
serve,  very  properly  classify  such  staples  lower  than  the 
same  commodity  may  be  classified  on  railroads  in  other 
sections,  where  it  constitutes  but  a  small  part  of  the  ton- 
nage. But  in  many  cases  the  difference  in  the  classifica- 
tion of  the  same  article  seems  incapable  of  reasonable 
explanation  ;  and  uniformity  in  the  interest  of  commerce 
is  a  great  desideratum.  It  is  hardly  likely,  however,  that 
complete  uniformity  can  ever  be  obtained  on  all  the  roads 
of  the  United  States.  Commodity  tariffs,  peculiar  and 
necessary  to  different  localities,  cannot  perhaps  with  jus- 
tice be  abolished.  Sometimes  the  classification  of  an 
article  is  not  only  arbitrary  and  unjust,  but  absolutely 
prohibitory  of  its  transportation,  and  purposely  made  so. 
As  in  the  case  of  railroad  cross-ties,  which  many  compa- 
nies class  so  high  as  to  prevent  their  shipment,  and  thus 
secure  them  for  their  own  use,  at  prices  which  competition 
between  purchasers  can  have  no  share  in  fixing. 


1/2  PUBLIC  REGULATION   OF  RAILWAYS. 

"  That  the  classifications  now  in  use  have  been  fairly- 
arranged,  with  due  regard  to  all  the  considerations  which 
have  been  alluded  to,  cannot  be  justly  claimed  by  the 
railroad  authorities.  In  many  instances  it  is  difificult  to 
ascertain  the  principles  upon  which  they  have  been  ad- 
justed, or  the  reasons  that  originally  dictated  the  marked 
differences  that  have  often  characterized  the  rates  upon 
articles  of  a  similar  character.  Differences  have  been  pre- 
served by  custom,  for  which  the  original  reason,  if  any 
existed,  has  been  forgotten,  with  the  result  that  they  now 
appear  arbitrary  and  unreasonable. 

"  The  tariffs  of  the  present  day  are  a  great  advance  upon 
those  of  a  few  years  ago  ;  but  there  is  yet  ample  room 
for  improvement.  They  have  been  a  gradual  growth, 
modified  and  improved  from  time  to  time  as  the  princi- 
ples which  should  govern  their  adjustment  have  become 
better  understood,  and  as  circumstances  have  seemed  to 
make  changes  expedient,  but  they  are  yet  too  largely 
arbitrary." ' 

Besides  the  several  methods  by  which  railroad  compa- 
nies may  discriminate  as  between  individuals  or  localities, 
the  same  evil  is  sometimes  produced  by  the  existence  of 
hostile  relations  between  different  companies,  which  re- 
sult in  an  intentional  failure  to  make  proper  connections, 
or  to  interchange  traffic,  on  a  just  and  equitable  basis. 
The  duties  of  the  companies  and  the  power  of  the  public 
in  the  matter  of  a  proper   interchange    of   traffic   have 

'  Report  Cullom  Committee,  pp.  i86,  187. 


INCREASE  IN  NATIONAL   WEALTH.  1 73 

already  been  considered.  No  little  inconvenience  is  some- 
times experienced  from  the  failure  of  connecting  or  inter- 
secting roads  to  adjust  their  time-tables  in  the  interest  of 
travellers  who  wish  to  transfer  from  one  road  to  the 
other.  Where  the  reasonable  accommodation  of  any- 
considerable  community,  or  any  considerable  volume  of 
travel  requires  close  connection  to  be  made  at  intersecting 
or  connecting  points,  and  where  such  connection  can  be 
made  with  due  regard  for  the  necessity  of  making  connec- 
tions at  other  points,  and  without  imposing  unreasonable 
requirements  upon  the  companies,  they  may  certainly  be 
compelled,  in  the  interest  of  the  public, — even  if  at  some 
sacrifice  of  their  own, — to  make  the  proper  connection. 

Some  writers  upon  the  railway  question,  notably  Mr. 
Edward  Atkinson,'  are  so  impressed  with  the  contempla- 
tion of  the  enormous  increase  in  national  wealth,  and  the 
vast  public  benefits  that  have  accrued  from  cheap  trans- 
portation by  rail,  as  to  ignore  or  greatly  belittle  the  evil 
that  has  been  nourished  and  grown  up  with  the  good. 
And  such  persons  deprecate  any  interference  whatever 
with  the  business  and  the  practices  of  the  transportation 
companies.  But  that  the  railways  have  frequently  used 
in  an  arbitrary  and  oppressive  manner  the  great  powers 
which  their  situation  in  the  commercial  world  enables 
them  to  exercise  over  so  many  interests  outside  their 
own,  is  not  to  be  denied ;  and  the  facility  with  which 
they  may  do  so,  and  their  temptations  to  perversion  of 
.'  See  paper  entitled  "  The  Railway  and  the  Farmer," 


174  PUBLIC  REGULATION  OF  RAILWAYS. 

public  duty,  clearly  show  the  necessity  of  subjecting  their 
operations  to  special  public  supervision  and  regulation. 
They  should  no  more  object  to  proper  public  super- 
vision than  the  national  banks.  Each  performs  a  public 
function,  and  each  should  be  subject  to  reasonable  public 
regulation. 


CHAPTER  VII. 

Methods  Adopted  or  Proposed  to  Prevent  Extortion  and  Unjust 
P)iscrh?itnatio?i — Publication  of  Rates — Statistical  Reports 
— English  ^''Railway  and  Canal  Traffic  Act'' — Remedial 
Statutes  Usually  of  Little  Avail —  The  Commission  System — 
Power  to  Fix  Rates — To  Revise  Rates — To  Hear  and 
Decide  Complaints —  To  Hear  Complaints  and  Make  Recom- 
mendations —  Examples  —  Georgia  and  Massachusetts — 
Theory  of  General  Unrestricted  Competition  over  the  Same 
Line  of  Road  Reviewed — Destructive  of  Commerce  in  Many 
Necessities  of  Life — Monopoly  Essential  to  Public  Lnterest 
— Theory  of  Public  Ownership  Reviewed —  Would  Fail  to 
Prevent  Discriminations. 

Extortion  and  some  kinds  of  discrimination  are 
obnoxious  to  the  principles  of  the  common  law,  but  there 
are  other  kinds  for  which  it  is  doubtful  if  the  common 
law  provides,  even  theoretically,  a  remedy.  And  prac- 
tically, in  most  cases,  the  disparity  between  the  parties  is 
so  great  where  an  individual  undertakes  to  assert  rights 
of  this  character  against  a  railroad  company  that  it  is 
seldom  attempted.'  Accordingly  provisions  have  fre- 
quently been  incorporated  into  constitutions  and  statutes 
intended  to  deprive  railroad  companies,  as  far  as  possible, 

'  Note  See  R.  R.  Co.  vs.  Lockwood,  17  Wall,  on  p.  379. 
175 


iy6  PUBLIC  REGULATION  OF  RAILWAYS. 

of  the  power  to  perpetrate  injustice  on  the  public.  And 
legislation  has  been  enacted  in  many  States,  undertaking 
to  define  and  expressly  forbid  extortion  and  unjust  dis- 
crimination in  the  operation  of  railroads,  and  enlarging 
the  remedies  of  the  citizen  against  these  practices. 

Railroads  are  sometimes  declared  expressly  to  be 
public  highways,  though  it  is  difificult  to  see  how  this 
mere  declaration  enlarges  the  power  of  the  public  over 
them.  Consolidation  and  pooling  by  parallel  or  compet- 
ing lines  is  sometimes  prohibited,  with  the  view  of  main- 
taining free  competition.  But  the  wisdom  of  the 
prohibition  is  doubtful  when  it  is  considered  that  the 
operation  of  competition  is  usually  limited  to  a  few 
localities,  and  that  excessive  competition  in  those  locali- 
ties tends  to  aggravate  monopoly  in  localities  where  no 
competition  exists. 

In  most  jurisdictions,  publication  and  conspicuous 
posting  of  rates,  and  of  changes  in  rates,  is  required, 
and  penalties  are  imposed  for  charging  more  or  less  than 
published  rates.  This  provision  is  generally  conceded  to 
be  one  of  the  most  effectual  for  the  prevention  of  unjust 
discriminations,  and  of  instability  and  sudden  and  unac- 
countable fluctuations  in  the  prices  of  railroad  trans- 
portation. 

Steadiness  and  reasonable  permanence  in  the  prices  of 
transportation  services  are  among  the  chief  essentials  of 
success  in  any  legitimate  business,  in  which  transportation 
by  rail  constitutes  a  considerable  element. 


STEADY  KATES.  1 7/ 

Steady  rates  are  far  more  desirable  than  much  cheaper 
but  more  uncertain  rates.'  Every  shipper  has  the  right 
to  know  what  the  price  of  any  given  railway  service  will 
be  to  him,  for  it  is  one  of  the  principal  bases  on  which  he 
contracts  with  his  customers.  And  he  also  has  the  right 
to  know  what  price  is  charged  to  his  rival  in  business  for 
the  same  or  similar  services,  and  to  be  protected  against 
discriminations  which  put  him  at  a  relative  disadvantage. 
By  the  better  class  of  railroad  managers  publication  of 
rates,  and  legal  penalties  for  varying  from  them,  seem  to 
be  earnestly  desired.''  Statutory  prohibitions  enable  mana- 
gers to  refuse  concessions  which  they  do  not  desire  to 
give,  but  which,  under  certain  circumstances,  it  might 
otherwise  be  hard  to  refuse. 

Statistical  reports  from  railroad  companies  are  required 
by  nearly  all  States  to  be  made  to  some  public  board  or 
ofificial.  Throughout  the  United  States  there  is  consider- 
able similarity  in  the  forms  of  reports.  But  for  the  pur- 
poses of  intelligent  comparison  of  the  data  furnished  by 
them  respecting  the  condition  and  operation  of  roads  in 
different  sections  and  States,  and  of  intelligent  deductions 
from  them,  greater  uniformity  between  the  reports  re- 
quired in  different  jurisdictions  is  believed  to  be  desirable. 
The  discussions  and  resolutions  in  the  recent  conference 
of  railroad  commissioners  in  Washington,  held  under  the 
auspices  of  the  Interstate  Commerce  Commission,  have 

'  See  Mr.  Russel's  statement,  Testimony,  Cullom 'Committee,  p.  300, 

^  Testimony,  CuUom  Committee,  p.  1210. 


178  PUBLIC  REGULATION   OF  RAILWAYS. 

initiated  an  organized  movement  in  the  direction  of  uni- 
formity in  our  States.  The  form  of  report  prescribed  for  car- 
riers, subject  to  the  Interstate  Commerce  Act,  will  doubt- 
less soon  be  adopted  in  all  the  States.  This  goes  with 
the  fullest  detail  into  the  financial  condition  of  all  the 
companies,  and  into  their  entire  field  of  operations.  The 
history,  organization,  stock,  funded  and  floating  debt, 
cost  of  road  and  equipment,  gross  earnings,  operating  ex- 
penses, tonnage,  ton  mileage,  average  rate  per  ton  per 
mile,  passengers  carried  and  passenger  mileage,  earnings 
from  freight  and  passenger  trafific  separately,  expenses 
allotted  to  each  kind  of  trafific,  subdivision  of  expenses  to 
*'  maintenance  of  way,"  "  maintenance  of  equipment," 
"  conducting  transportation,"  and  "general  expenses,"  as 
well  as  many  other  matters,  are  called  for  in  the  utmost 
detail.  The  mass  of  information  thus  furnished  and  tabu- 
lated is  of  the  highest  practical  value. 

In  Pennsylvania,  and  in  a  number  of  other  States,  there 
is  a  constitutional  provision  that  :  "  Every  railroad  com- 
pany shall  have  the  right  with  its  road  to  intersect,  con- 
nect with,  or  cross  any  other  railroad,  and  shall  receive 
and  transport  each  the  other's  passengers,  tonnage,  and 
cars,  loaded  or  empty,  without  delay  or  discrimination." 

In  some  States,  as  in  Massachusetts  and  Michigan, 
there  are  legislative  enactments  requiring  connecting  rail- 
road companies  to  interchange  trafific — transporting  each 
the  cars  of  the  other  on  iust  and  reasonable  terms.  And 
if  the  companies  themselves  cannot  agree  on  the  mode 


BUSINESS  CONNECTION.  179 

and  terms  of  such  interchange,  the  railroad  commission, 
on  notice  to  the  parties,  is  authorized  to  fix  the  times 
and  the  terms  upon  which  each  company  shall  carry  the 
vehicles  and  traffic  of  the  other,  in  such  manner  as  may  be 
just  between  the  companies,  and  for  the  interest  and  con- 
venience of  the  public. 

Provision  is  made  for  certifying  the  decision  of  the 
commission  to  the  supreme  judicial  court,  where  it  is 
"  subject  to  revision  in  the  same  manner  as  if  the  board 
[of  commissioners]  had  derived  its  powers  in  the  premises 
under  the  appointment  of  said  court." 

The  explicit  terms  of  these  provisions,  which  require 
and  provide  for  enforcing  a  proper  interchange  of  traffic 
in  the  public  interest,  have  the  effect  to  establish  a 
"business  connection"  between  the  companies  ;  and  thus 
essentially  differ  from  the  constitutional  provisions  of 
Colorado,  which  were  claimed  to  have  the  same  effect, 
but  which  were  interpreted  by  the  United  States  Supreme 
Court  as  referring  merely  to  a  physical  connection  of 
tracks  (see  ante  p.  14). 

The  provision  against  discriminations  in  the  laws  of 
many  of  the  American  States  is  based  upon  an  act  of  the 
English  Parliament,  passed  for  the  same  purpose  in  the 
year  1854,  styled  the  "  Railway  and  Canal  Traffic  Act." 
This  provided  that  no  company  should  "  make  or  give 
any  undue  or  unreasonable  preference  or  advantage 
to  or  in  favor  of  any  particular  person  or  company,  or  any 
particular  description   of  traffic,  in  any    respect  whatso- 


l8o  PUBLIC  REGULATION  OF  RAILWAYS. 

ever,"  and  should  not  "  subject  any  particular  person  or 
company,  or  any  particular  description  of  traffic,  to  any 
undue  or  unreasonable  prejudice  or  disadvantage,  in  any 
respect  whatsoever."  Another  important  provision  of 
the  English  act,  not  usually  found  in  the  American  laws, 
is  that  "  every  railroad  company  .  .  .  working  rail- 
ways which  form  part  of  a  continuous  line  of  railway 
.  .  .  communication,  .  .  .  shall  afford  all  due 
and  reasonable  facilities  for  receiving  and  forwarding  by 
one  of  such  railways  ...  all  the  traffic  arriving  by 
the  others  without  any  unreasonable  delay  and  without 
any  .  .  .  preference  or  advantage,  prejudice  or  dis- 
advantage .  .  .  and  so  that  no  obstruction  may  be 
offered  to  the  public  desirous  of  using  such  railways 
.  .  .  as  a  continuous  line  of  communication,  and  so 
that  all  reasonable  accommodation  may  by  means  of  the 
railways  of  the  several  companies  be  at  all  times  afforded 
to  the  pubhc  in  that  behalf."  This  act  as  interpreted  by 
the  courts,  says  Mr.  Sterne,  "  is  one  that,  in  the  first 
place,  prevents  undue  preferences,  and,  in  the  second 
place,  compels  interchange  of  traffic."  But  to  remove 
doubts  and  ambiguities  which  seem  to  have  arisen  on  this 
point,  a  very  recent  act  of  Parliament  has  explained  and 
amended  the  provision  last  mentioned,  by  declaring  that 
the  facilities  referred  to  therein  shall  include  the  due  and 
reasonable  receiving  and  forwarding  of  "  through  traffic  " 
at  "  through  rates  "  by  connecting  roads,  at  the  request 
of  either  of  the  railroad  companies,  or  at  the  request  of 


THROUGH  RATES.  l8l 

any  person  interested  in  such  traffic.  Elaborate  pro- 
vision is  made  (in  case  a  satisfactory  arrangement  can 
not  be  agreed  on  by  the  parties  interested)  for  the  desig- 
nation of  the  through  route  and  the  establishment  of  a 
through  rate  and  its  apportionment  among  the  different 
lines  constituting  the  route,  by  the  board  of  railroad 
commissioners. 

The  commissioners  in  discharging  this  function  are 
directed  to  consider  whether  the  "  through  route  "  and 
the  "  through  rates "  desired  are  due  and  reasonable 
facilities  in  the  public  interest. 

Among  other  important  provisions  of  recent  English 
legislation  may  be  mentioned  the  requirement  that  the 
classifications,  and  the  schedules  of  maximum  rates  of 
railroad  companies,  shall  be  approved  and  adjusted  by  the 
Board  of  Trade,  and  submitted  to  Parliament  for  con- 
firmation. Some  degree  of  adaptability  to  changing 
conditions  of  traffic  is  provided  for  by  giving  the  Board 
of  Trade  authority,  upon  application,  after  due  publica- 
tion of  notice,  to  change,  modify,  or  amend  the  classi- 
fications and  tariffs.'  According  to  Professor  Hadlcy, 
who  has  carefully  studied  the  railway  systems  of  both  this 
and  foreign  countries,  in  their  relation  to  the  public,  the 
English  railroad  commissioners  have  construed  the  act  of 
1854  to  mean  that  rates  shall  be  based,  to  a  very  large 
extent  at  least,  on  cost  of  service  ;  and  have  held  that  the 

'  English  legislation,  given  in  Second  Annual  Report  (1888)  of  Interstate 
Commerce  Commission. 


1 82  PUBLIC  REGULA  TION  OF  RAIL  WA  YS. 

existence  of  competition  does  not  justify  a  departure  from 
this  rule  ;  also  that  a  greater  charge  must  be  made,  and  a 
greater  net  profit  realized  from  the  long  haul  than  from 
the  short  haul,  and  that  no  more  shall  be  charged  for 
carrying  a  more  valuable  than  a  cheaper  article  of  the 
same  general  character.  And  the  regular  courts  at  West- 
minster have  decided  that  the  act  forbids  charging  less  for 
the  whole  distance  between  any  two  points  than  for  a 
part  of  that  distance,  thus  extracting  from  the  act  the 
"  long-  and-short  haul "  principle,  so  much  discussed  in 
this  country.' 

The  English  courts,  however,  in  construing  the  act, 
have  admitted  the  principle  of  difference  between  whole- 
sale and  retail  prices  in  trade,  as  applicable  to  transporta- 
tion, and  as  justifying  a  lesser  charge  to  the  larger 
shipper,  "  provided  the  real  object  of  the  railway  company 
be  to  obtain  thereby  a  greater  remunerative  profit,  by  the 
diminished  cost  of  carriage,  although  the  effect  may  be  to 
exclude  from  the  lower  rate  those  persons  who  cannot 
give  such  a  guaranty."  * 

The  Supreme  Court  of  the  United  States  has  declared 
that  the  English  cases  "  are  instructive  and  of  high 
authority  as  to  what  would  be  undue  or  unreasonable 
preference  among  competing  customers  "  (i  lo  U.  S.,  p. 
684).  But  the  railroad  commissions  of  our  States  have 
not  generally  given  to  similar  enactments  a  construction 

'  "  Railroad  Transportation,"  pp.  182,  et  scq.  and  note. 
2  Nicholson  vs.  R.  R.  Co.,  94th  E.  C.  L.  R.,  p.  440. 


COST-OF-SERVICE   PRINCIPLE.  1 83 

as  broad  as  that  which  the  English  commissioners  and 
courts  have  placed  upon  their  law ;  and  they  have 
allowed  discriminations  in  some  cases — and  apparently 
upon  sound  reasons — where  their  decisions  would  be 
repugnant  to  the  English  adjudications. 

And  even  where  legislation  contains  a  specific  provision 
on  the  subject  of  the  long  and  short  haul,  it  usually  goes 
no  further  than  to  forbid  a  greater  charge  for  the  latter 
than  for  the  former.  As  very  justly  observed  by  Mr. 
Hadley,  the  cost-of-service  principle  (which  embraces  the 
subject  of  the  long  and  short  haul)  is  generally  used  in 
America  to  prevent  the  creation  of  inequalities,  while  in 
England  the  same  principle  is  used  to  prevent  their 
abolition.  Indeed  State  statutes,  expressly  forbidding  a 
greater  charge  for  the  shorter  than  the  longer  transporta- 
tion, have  sometimes  been  violated  by  railroad  companies 
with  the  tacit  consent  of  the  authorities,  where  their 
enforcement  would  manifestly  have  been  unjust  to  the 
companies,  and  productive  of  no  public  good.'  Besides 
the  statutory  prohibitions  and  requirements  which  have 
just  been  discussed,  very  summary  and  stringent  remedies 
are  usually  provided  for  their  violation,  both  by  way  of 
exemplary  damages  to  the  party  injured  thereby,  and  by 
way  of  fines  in  the  nature  of  public  punishment.  But 
these  provisions  have  been  found  insufficient  to  prevent 
the  practices  prohibited,  or  to  put  the  parties  on  a  foot- 
ing of  equality,  at  least  as  a  general  rule.     Remedial  laws 

'  See  Interstate  Com.  Repts.,  vol.  i.,  p.  141  (testimony). 


1 84  PUBLIC  REGULATION  OF  RAILWAYS. 

of  this  kind,  in  fact,  no  matter  how  stringent,  where  their 
appHcation  is  left  solely  to  the  individual  action  of  the 
injured  party,  have  usually  been  little  more  than  dead 
letters.  The  reason  of  this  is  apparent.  In  the  first  place, 
the  laws  are  frequently  based  upon  false  principles,  whose 
practical  application  would  be  both  unjust  and  injurious. 
In  the  second  place,  the  amount  involved  in  each  case  is 
frequently  so  small  that  the  complainant  cannot  afford 
the  expenses  of  litigation  over  it,  while  the  principle 
involved  is  of  such  importance  to  the  railroad  companies 
that  they  are  willing  to  incur  large  expense  rather  than 
suffer  an  adverse  decision. 

Some  of  the  earlier  Granger  legislation,  as  it  was  com- 
monly called,  went  the  length  of  establishing  directly  by 
statute  a  system  of  railway  tariffs,  but  this  proved  wholly 
impracticable,  and  was  speedily  abolished.  Accordingly 
the  commission  system  has  now  generally  been  adopted — 
that  is,  a  special  board  charged  with  the  duty  of  exer- 
cising over  the  transportation  companies  such  powers  as 
the  State  sees  fit  to  delegate  to  it.  Very  different  degrees 
of  authority  have  been  conferred  upon  railroad  commis- 
sioners in  different  jurisdictions.  In  Georgia,  for  example, 
the  commission  is  "  authorized  and  required  to  make  for 
each  of  the  railroad  companies  doing  business  in  this 
State  ...  a  schedule  of  just  and  reasonable  rates  and 
charges  for  the  transportation  of  passengers  and  freights 
and  cars  over  each  of  said  railroads."  But  the  Georgia 
law  contains  no  specific  provision  on  the  subject  of  the 


THE  INTERSTATE   LAW.  1 85 

long  and  short  haul.  In  Alabama  the  commission  is 
required  to  consider  and  carefully  revise  all  tariffs  of 
charges  for  transportation  submitted  to  them  by  the  rail- 
road companies,  and  to  notify  the  companies  submitting 
the  same  of  the  changes,  if  any,  deemed  necessary  to 
avoid  extortion  and  unjust  discrimination.  The  com- 
panies are,  of  course,  required  by  the  law  to  submit  their 
tariffs  to  the  commission  for  revision.  In  controversies 
upon  the  subject  of  rates,  the  revised  tariffs  are  held  to  be 
prima  facie  right  and  just. 

Certain  discriminations  are  evidently  contemplated  by 
the  Alabama  law  as  reasonable  and  just,  where  they  are 
necessary  to  enable  the  railroad  company  to  make  a  fair 
net  revenue  on  the  just  value  of  its  property.'  Proba- 
bly the  discriminations  had  in  view  were  those  arising 
from  the  comparative  rates  on  long  and  short  hauls, 
though  the  act  contains  no  specific  provision  on  that 
subject. 

The  "  Interstate  Law  "  of  Congress  is  a  good  example 
of  a  still  more  limited  degree  of  authority  in  the  commis- 
sion, which  is,  nevertheless,  possessed  of  very  large  and 
useful  powers,  and  which  is  to  some  extent  directed  to  a 
particular  course  of  action  which  is  not  prescribed  in  the 
States  above  referred  to.  The  Federal  law  will  be  dis- 
cussed in  subsequent  pages. 

Finally  the  Massachusetts  commission  illustrates  the 
class  of  commissions  with  the  most  limited  powers,  being 
'  See  Section  6  of  the  Act  of  1881. 


1 86  PUBLIC  REGULATION  OF  RAILWAYS. 

merely  those  of  hearing  complaints,  and  making  recom- 
mendations  thereon. 

The  effect,  and  the  mode  of  enforcing  the  decisions  of 
railroad  commissions  varies  in  the  different  acts  creating 
them.  Usually  their  judgments,  and  the  facts  found  by 
them,  are  directed  to  be  held  prima  facie  correct  in  all 
subsequent  judicial  proceedings.  In  no  case,  it  is  believed, 
in  any  State  of  the  Union,  have  their  judgments  the 
finality  and  binding  effect  of  those  of  a  regularly  consti- 
tuted court,  nor  are  they  capable  of  being  enforced  by 
any  process  issuable  by  the  commission  itself.  In  this 
respect  the  powers  of  the  American  commissions  fall  short 
of  those  of  the  English  commission,  which  is  authorized 
to  compel  obedience  to  its  orders  by  mandatory  in- 
junction. 

In  some  States  the  commission  having  rendered  its 
decision  on  any  matter  or  question,  is  functus  officio,  and 
is  not  empowered  even  to  apply  to  the  courts  to  have 
the  decision  enforced.  It  therefore  merely  operates  to 
place  the  party  in  whose  favor  it  was  rendered  in  a  posi- 
tion of  prima  facie  right  in  any  subsequent  litigation 
of  the  matter  in  court.  And  where  criminal  penalties 
are  imposed  on  railroad  companies  for  violations  of  duty, 
the  finding  of  the  commission,  that  the  violation  has 
occurred,  is  sometimes  made  prima  facie  evidence  of 
guilt.  Under  some  statutes  the  commission  is  author- 
ized to  apply  to  the  proper  court,  at  the  costs  of  the 
State,  for  process  to  compel  obedience  to  its  decision 


CONS  TI TU  TIONA  LI  TV  OF  THE  LA  W.  1 8  7 

or  order ;  and  in  such  cases,  the  action  of  the  com- 
mission, though  presumed  to  be  right  until  otherwise 
shown,  may  on  sufficient  grounds  be  reversed. 

In  this  way  the  constitutionality  of  the  law,  its  inter- 
pretation, and  its  proper  application  to  the  evidence,  may 
be  brought  before  the  regular  judicial  tribunals.  The 
effect  of  a  State  investing  corporations  of  other  States 
with  the  right  to  operate  its  railways,  as  is  frequently 
done  by  legislative  acts  authorizing  or  confirming  con- 
solidations and  leases,  is  worthy  of  consideration  in  this 
connection.  For  the  foreign  corporation  is  entitled  to 
transfer  legal  proceedings  against  it,  of  a  civil  nature,  into 
the  federal  courts."  There  are  cases  where  the  lessor 
company  may  be  held  liable  for  the  torts  of  the  lessee, 
and  if  the  former  is  a  domestic  corporation,  the  State 
courts  may  retain  jurisdiction  over  it.  But  the  enforce- 
ment of  a  judgment  can  hardly,  as  a  general  rule,  be  as 
easy  or  satisfactory  as  it  would  be,  if  rendered  against 
the  operating  company.  And  where  proceedings  of  a 
civil  nature  are  instituted  to  enforce  the  rights  of  indi- 
viduals, or  the  orders  of  a  State  Commission  in  respect 
to  reasonableness  of  charges,  unjust  discriminations, 
proper  facilities  for  interchange  of  traffic,  etc.,  it  would 
seem  that  they  must  necessarily  be  against  the  operating 
company.  And  if  so,  though  the  subject-matter  of  liti- 
gation may  be  entirely  within  the  jurisdiction  of  the 
State  commission,  and  the  State  Court,  yet  the  status 
'  R.  R.  Company  vs.  Kootz,  104  U.  S.,  p.  5. 


1 88  PUBLIC  REGULATION  OF  RAILWAYS. 

of  the  offending  company  as  a  foreign  corporation  en- 
titles it  to  the  judgment  of  the  federal  courts ;  and 
there  the  action  of  the  State  commission  may  be  re- 
viewed, and  either  affirmed  or  reversed. 

It  does  not  seem  wise  thus  to  commit  the  adjudication 
of  the  State's  rights  in  the  regulation  of  the  domestic 
commerce  upon  its  public  highways  to  any  other  tri- 
bunals than  its  own. 

The  greater  facility  and  cheapness  with  which  com- 
merce may  be  carried  on  over  extensive  railway  systems 
as  compared  with  the  independent  operation  of  connect- 
ing roads,  and  the  consequent  public  benefit  arising 
therefrom,  should  undoubtedly  have  great  weight  with  a 
legislature  in  authorizing  consolidations,  purchases,  and 
leases  of  connecting  lines. 

But  it  is  highly  desirable  that  the  unification  and  con- 
solidation of  the  railway  transportation  system,  towards 
which  the  tendency  is  now  so  strong,  should  be  accom- 
panied with  great  legislative  precaution,  to  prevent  results 
such  as  have  just  been  suggested  as  likely  to  follow. 
To  meet  these  difficulties  it  is  sometimes  provided,  in 
acts  authorizing  leases  or  sales  of  the  works,  property, 
and  franchises  of  domestic  corporations  to  foreign 
companies,  or  authorizing  consolidations  with  such  com- 
panies, that  the  latter  "  shall,  for  purposes  of  suing  and 
being  sued,  be  deemed  domestic  corporations."  But  the 
validity  and  effectiveness  of  such  a  proviso  is  very 
questionable.     For   it   has   been    decided    that   where   a 


CON  SOL  IDA  TION.  1 89 

railroad  company  of  one  State  is  operating  railroads  in 
another  State,  under  a  claim  of  authority  from  the  latter, 
such  company  cannot,  as  a  condition  of  continuing  its 
business,  be  required  to  submit  to  the  jurisdiction  of  the 
State  courts,  in  litigation  arising  against  it  in  the  State. 
The  right  to  the  jurisdiction  and  judgment  of  a  federal 
court  is  one  which  constitutionally  belongs  to  the  foreign 
corporation,  and  of  which  a  State  law  cannot  deprive  it. 
(Barron  vs.  Burnside,  121  U.S.,  p.  186.)  While  therefore, 
the  leasing  of  the  railroads  of  one  State  to  companies  of 
another,  certainly  should  be,  and  probably  is,  dependent 
on  the  will  of  the  former  State,  yet  if  that  State  sanctions 
such  a  lease,  it  is  very  doubtful  whether  it  can,  even  as  a 
condition  precedent,  require  that  the  lessee  company 
shall  be  subject  to  the  jurisdiction  of  its  own  courts. 

A  provision  in  the  act  authorizing  such  a  lease,  that 
"  the  lessee  company  shall,  for  the  purposes  of  suing  and 
being  sued,  be  deemed  a  corporation  of  this  State,"  would 
not  in  fact  make  it  such  a  corporation,  and  probably  would 
not  oust  the  federal  jurisdiction.  To  preserve  the  juris- 
diction of  the  State  courts,  the  corporation,  which  it  is 
proposed  to  admit  to  the  operation  of  railroads  within  the 
State,  must  in  fact  be  made  a  corporation  of  the  State. 
Where  a  consolidation  of  railroad  companies  of  different 
States  is  contemplated,  the  identity  of  each  within  the 
limits  of  the  State  creating  it  may,  by  the  use  of  apt 
language  in  the  act  of  consolidation,  be  still  preserved. 
And  where  this    is  done    the  consolidated    company  re- 


IQO  PUBLIC  REGULA  TION  OF  RAIL  WA  YS. 

mains,  as  regards  its  operations  in  either  of  the  States,  a 
corporation  of  that  State,  and  as  such  subject  to  the 
jurisdiction  of  its  courts.  (Muller  vs.  Dows,  94  U.  S.,  p. 
447;  R.  R.  Co.  vs.  Whitton,  13  Wall  270;  O.  and  M.  R. 
R.  Co.  vs.  Wheeler,   i  Black,  295.) 

The  same  is  true  as  regards  a  sale  of  railroad  property 
to  a  corporation  of  another  State,  and  there  is  no  reason 
why  it  should  not  be  true  of  leases  also.  In  the  case  of 
Railroad  Co.  vs.  Harris  (12  Wall,  82),  the  Supreme  Court 
said  that  it  saw  no  "  reason  why  one  State  may  not  make 
a  corporation  of  another  State,  as  there  organized  and 
conducted,  a  corporation  of  its  own,  quo  ad  any  property 
within  its  territorial  jurisdiction.  .  .  .  The  question  is 
always  one  of  legislative  intent,  not  of  legislative  power  or 
legal  possibility."  In  that  case,  however,  it  was  held  that 
the  legislation  of  Virginia,  permitting  the  B.  and  O.  R.  R. 
Co.  to  extend  its  road  into  that  State,  had  not  made  the 
company,  even  within  its  limits,  a  corporation  of  Virginia. 
But  in  the  case  of  Clarke  vs.  Barnard  (108  U.  S.,  436), 
a  Connecticut  railroad  company  was  authorized  by  the 
laws  of  that  State,  to  purchase  or  lease  railways  in  other 
States.  The  Connecticut  company  accordingly  purchased 
a  railroad  in  Rhode  Island,  belonging  to  a  corporation  of 
the  latter  State.  This  purchase  was  subsequently  ratified 
and  confirmed  by  the  legislature  of  Rhode  Island,  by 
which  body  it  was  enacted,  that  the  purchasing  company 
"  should  have,  use,  exercise,  and  enjoy  all  the  privileges  and 
powers  heretofore  granted  and  belonging  to  "  the  selling 


JUST  AND  REASONABLE  RATES.  Iq! 

company,  "and  be  subject  to  all  the  duties  and  liabilities 
imposed  upon  the  same  by  its  charter  and  the  general 
laws  of  the  State."  This  language  was  held  to  make  the 
purchasing  company,  in  respect  to  its  railroad  in  Rhode 
Island,  a  corporation  in  and  of  that  State,  for  purposes  of 
jurisdiction.  Similar  language  should  always  be  incorpo- 
rated into  legislative  acts  authorizing  leases  or  sales  of 
railroads  to  foreign  corporations. 

Where  the  power  of  fixing  or  revising  railroad  rates  is 
vested  in  a  commission,  it  is  provided  in  perhaps  all 
the  statutes  that  the  rates  fixed  shall  be  "  just  and  reason- 
able," or  that  the  revision  of  the  tariff  shall  be  so  effected 
as  to  allow  to  the  owners  of  the  road  a  "  fair  and  just 
return  on  the  value  of  the  railroad,  its  appurtenances  and 
equipment."  But  whether  the  power  lodged  in  the  com- 
mission be  that  of  primarily  establishing  rates,  or  that  of 
revising  tariffs  already  established  by  the  companies, 
or  that  of  hearing  and  deciding  complaints  of  extortion 
and  unjust  discrimination,  or  that  of  merely  hearing  com- 
plaints and  making  recommendations, — in  all  these  cases  it 
is  proper  (and  is  sometimes  expressly  provided)  that  the 
commission  should  take  into  consideration  the  character 
and  nature  of  the  service  to  be  performed,  and  the 
entire  business  and  earnings  of  the  railroad,  with  the  view 
of  allowing  to  the  company  a  reasonable  net  return  on  the 
just  value  of  its  property.  It  has  been  shown  that  the 
just  value  of  railway  property  is  by  no  means  synonymous 
with  the  amount  of  its  capitalization,  or  even  of  its  cost. 


192  PUBLIC  REGULATION  OF  RAILWAYS. 

An  enormous  capitalization  is  sometimes  referred  to  by 
railroad  managers,  in  justification  of  charges  that  are 
complained  of  as  exorbitant.  Yet  in  point  of  fact  the 
capitalization  does  not  usually  (except  within  narrow 
limits)  affect  the  question  of  rates.  Maximum  rates 
by  no  means  imply  maximum  revenues ;  the  rates  may 
be  prohibitory.  The  object  of  managers  is  to  secure 
maximum  revenues,  and  with  this  end  in  view  they 
adjust  the  tariffs  whether  the  capitalization  be  large  or 
small. 

Even  in  States  where  practically  absolute  power  over 
the  rates  of  railways  has  been  intrusted  to  the  commis- 
sion, as  in  Georgia  for  example,  they  have  exempted  from 
the  operation  of  the  long-  and  short-haul  rule,  roads  which 
at  the  termini  of  the  longer  haul  are  compelled  to  meet 
competitors  for  trafific  over  whom  the  commission  has  no 
control.  But  questions  of  competition,  distance,  value  of 
freight,  and  other  circumstances  have  evidently  entered 
into  the  basis  upon  which  the  Georgia  commission  has 
established  tariffs  for  the  railroads  of  that  State,  and 
greatly  modified  the  cost-of-service  principle,  even  where 
the  competitors  are  all  under  the  jurisdiction  of  the  com- 
mission. As  said  by  Major  Campbell  Wallace,  the  head 
of  the  Georgia  commission,  and  a  practical  railroad  man 
of  very  large  experience  :  "  A  community  having  more 
railroads  than  one,  or  having  one  and  a  navigable  water- 
course, has  commercial  and  transportation  advantages  and 
facilities  that,    according   to  all   the  laws   of  trade   and 


THE   GEORGIA    COMMISSION.  1 93 

commerce,  do  not  accrue  to  a  community  with  only  one 
railroad  or  simply  a  navigable  watercourse." 

And  again  Major  Wallace,  in  his  testimony  before  the 
Cullom  Committee  explaining  the  principles  on  which 
they  fixed  rates,  said  :  "  We  take  into  consideration  the 
length  of  the  road,  its  grade,  its  curvature.  We  take  into 
consideration  the  commerce  that  will  naturally  flow  to  it 
without  competition  or  with  competition.  We  do  not 
interfere  with  any  competing  point,  except  that  there  is  to 
be  no  discrimination." 

Practically,  the  Georgia  commission  has  found  it  neces- 
sary, it  is  said,  to  make  numerous  exceptions  to  the 
"  standard  tariff  and  classification  "  fixed  by  them,  not 
only  upon  different  roads,  but  on  different  articles  of 
traffic  on  the  same  road  ;  and  from  time  to  time  on  the 
same  commodities,  as  circumstances  have  shown  to  be 
necessary  and  just.  This  demonstrates  the  futility  of 
attempting  to  establish  permanent  and  unyielding  rates  of 
transportation  by  public  authority.  The  Georgia  com- 
mission has  been  one  of  the  most  successful  of  its  class 
{i.  e.,  exercising  such  large  powers),  and  it  is  claimed  by  its 
friends  to  have  accomplished  great  public  good  in  that 
State  without  detriment  to  the  railway  interests.  Mr. 
Hadley  suggests  that  its  success  in  preventing  discrimina- 
tions has  been  not  a  little  contributed  to  by  the  admirable 
pooling  system  of  the  Southern  Railway  and  Steamship 
Association,  of  which  most  of  the  Georgia  railroads  are 
members.    The  fact  seems  to  be  that  the  Georgia  com- 


194  PUBLIC  REGULATION  OF  RAILWAYS. 

mission  always  (and  most  wisely)  confers  freely  with  the 
railroad  authorities  in  fixing  schedules  of  rates,  and  allows 
variations  from  the  "  standard  tariff,"  such  as  either 
general  or  special  reasons  show  to  be  just.  The  commis- 
sion's tariff,  however,  is  by  no  means  in  all  respects 
satisfactory  to    the    railway  interests.' 

Turning  now  to  the  other  extreme  of  the  various 
theories  of  railway  regulation  by  commissions,- — namely, 
that  of  minimum  powers,- — as  exemplified  by  its  workings 
in  the  State  of  Massachusetts,  it  is  said  that  all  classes  of 
the  community,  including  both  the  railroads  and  the 
shippers,  are  perfectly  satisfied  with  its  results.  The  com- 
mission there  has  no  power  except  to  investigate  com- 
plaints, to  recommend  to  the  railroad  companies  such 
action  upon  them  as  is  deemed  proper,  and  to  report 
their  proceedings  and  the  conduct  of  the  transportation 
companies  to  the  legislature.  Their  findings  of  fact  are 
not  even  prima-facie"  evidence  in  court  (see  Judge  Rus- 
sel's  statement,  Testimony,  Cull.  Com.,  p.  303),  and  their 
decisions  have  only  such  weight  as  may  attach  to  their 
intrinsic  merit.  By  the  general  law  discriminations  are 
forbidden,  and  no  more  is  allowed  to  be  charged  for 
hauling  the  same  class  and  quantity  of  freight  a  shorter 
than  a  longer  distance  from  the  same  original  point  of 
departure  and  in  the  same  direction.  The  long-  and  short- 
haul  law,  thus  limited,  is  implicitly  obeyed  by  the  railroad 
companies,  it   is  said,  and  they  have   almost    invariably 

'  See  vol.  i.,  Interstate  Com.  Repts.,  p.  126  (testimony). 


THE  MASSACHUSETTS  SYSTEM.  1 95 

yielded  to  the  recommendations  of  the  commission, 
on  whatever  subject  made — sometimes  to  their  heavy 
pecuniary  loss.' 

One  very  beneficial  result  that  has  attended  upon  the 
labors  of  the  Massachusetts  commission,  is  the  effect 
which  their  public  hearing  of  complaints  has  had  in 
removing  erroneous  impressions  which  people  frequently 
entertain  of  injustice  done  them  by  the  action  of  the 
railroads.  The  latter  have  in  many  instances  been  proven 
to  the  entire  satisfaction  of  the  complainants  to  be  justifi- 
able in  pursuing  the  course  complained  of ;  and  hence 
a  better  feeling  between  the  different  interests  has 
resulted. 

The  Massachusetts  system  has  been  substantially 
adopted  in  New  York — the  more  drastic  measure  recom- 
mended by  the  Hepburn  Committee  having  been  defeated, 
— and  it  is  generally  conceded  to  have  produced  excellent 
results.  There  are  some  States,  however,  where  the  com- 
mission with  these  limited  powers  has  failed  to  accom- 
plish much  good,  and  the  failure  is  usually  attributed  to 
its  lack  of  authority. 

But  even  where  the  commission  is  armed  with  very 
extensive  powers,  its  workings  have  not  always  been  by 
any  means  satisfactory  ;  and  the  probability  is  that  the 
success  of  both  the  Georgia  and  the  Massachusetts  com- 
missions, organized  as  they  are  on  such  different  theories, 
and  with  such  different  powers,  has  been  more  largely  due 

'  See  Testimony,  Cull.  Com.,  pp.  305,  306. 


196  PUBLIC  REGULATION  OF  RAILWAYS. 

to  the  personal  ability  and  fitness  of  their  members  for 
the  discharge  of  the  duties  imposed  on  them,  than  to  the 
character  of  the  laws  under  which  they  have  acted. 

If  this  be  true,  it  justifies,  to  a  large  extent  at  least,  the 
remark  of  Mr.  Adams,  that  a  commission  without  any 
law  is  preferable  to  a  law  without  the  commission.  But 
the  correctness  of  this  assertion  depends  on  the  material 
of  which  the  commission  is  composed.  Where  the  in- 
cumbent of  such  a  position  is  elected  upon  political  con- 
siderations, or  those  of  personal  popularity  merely,  without 
regard  to  fitness,  it  can  only  result  in  bringing  the  of^ce 
into  disrepute  ;  and  this  has  too  often  been  the  case.  On  the 
whole,  however,  the  commission  plan  seems  the  best  yet 
devised  or  suggested  for  the  public  regulation  of  railroad 
transportation.  And  that  there  should  be  a  commission 
to  represent  the  interest  of  the  public  in  railroads  and  rail- 
road transportation,  results  almost  necessarily  from  the 
dual  character  of  railroad  property  as  already  explained — 
that  o{  private  ownership  clothed  with  a  public  use.  It  is 
certain  that  their  owners  and  managers  regard  railroads 
chiefly  from  the  proprietary  standpoint,  and  operate  them 
with  a  single  eye  to  the  private  interests  concerned.  Nor 
should  they  be  blamed  for  doing  so.  But  as  the  man- 
agers serve  primarily  the  private  interests  in  the  railroads, 
there  should  be  public  agents  to  serve  the  paramount 
public  interests,  not  in  the  character  of  partisans,  but  to 
see  that  justice  be  done  to  all,  so  far  as  is  practicable. 
The  objection  that  the  commissioners  may  fall  under  the 


ABUSE   OF  PUBLIC  OFFICE.  197 

influence  of  the  corporations  whose  actions  they  are 
employed  to  supervise,  is  one  that  appHes — though  per- 
haps not  always  with  the  same  force — to  every  public 
agency  employed  to  represent  the  State,  in  dealing  with 
parties  whose  interests  arc,  or  may  be,  antagonistic  to 
those  of  the  general  public. 

It  applies  to  the  post-ofifice  department,  and  the  other 
departments  of  government  in  contracting  for  services 
and  supplies,  and  it  applies  to  the  courts  in  the  discharge 
of  many  of  their  duties.  It  has  happened,  unfortunately 
too  frequently,  that  the  public  interests  have  been  be- 
trayed in  these  matters,  either  through  corruption  or 
favoritism.  But  the  fact  that  a  public  office  may  be 
abused  is  no  argument  against  its  existence,  when  so 
many  imperative  reasons  call  for  it.  The  vast  prepon- 
derance of  evidence  is  to  the  effect  that  the  commission 
system,  in  many  jurisdictions  where  it  prevails,  has  greatly 
mitigated  the  evils  of  railway  abuses  where  they  really 
exist,  and  has  often  done  scarcely  less  good  in  pointing 
out  cases  where  methods  and  practices,  commonly  sup- 
posed to  be  unjustly  discriminative,  are  not  really  ob- 
noxious to  that  charge. 

It  should  not  be  supposed,  as  without  due  consideration 
it  sometimes  is,  that  the  mere  presentation  of  a  complaint 
to  a  railroad  commission  absolves  the  complainant  from 
all  further  effort  or  participation  in  securing  his  rights. 
If  the  facts  alleged  by  him  are  controverted,  it  behooves 
him,  as  a  general  rule,  to  prove  them,     But  the  commis- 


198  PUBLIC  REGULATION  OF  RAILWAYS. 

sion  is  usually  provided  with  powers  to  compel  the 
production  of  testimony  which  to  the  complainant,  un- 
aided, would  be  practically  inaccessible ;  and  frequently, 
under  an  undisputed  state  of  facts,  a  party  may  be  entitled 
to  relief  which,  without  the  commission's  aid,  he  could 
never  obtain.  The  proceedings  before  commissions,  too, 
are  attended  with  far  less  formality  and  technicality  than 
are  incident  to  proceedings  in  courts,  and  are  not  liable 
to  delays  from  time  to  time,  which,  on  one  pretext  or 
another,  are  so  often  resorted  to  by  railway  companies, 
until  the  hopes  and  the  resources  of  the  complainant  are 
alike  exhausted.  The  constitution  of  a  railroad  commis- 
sion, which  is  supposed  to  be,  and  should  be,  composed 
of  men  of  intelligence,  versed  in  the  matters  which  come 
before  them,  required  to  give  their  attention  exclusively 
to  the  objects  contemplated  in  the  creation  of  their  office, 
and  prepared  at  all  times  to  hear  and  decide  complaints, 
is  an  immense  aid  in  the  administration  of  the  law. 
To  leave  questions  of  the  kind  usually  committed  to  a 
commission  to  an  ordinary  jury,  drawn  temporarily  from 
a  dozen  different  vocations,  or  to  a  court  unfamiliar  with 
the  economic  principles  involved,  taken  up  with  contro- 
versies of  a  wholly  different  character,  and  limited  to 
particular  times  and  places  for  hearing  causes,  amounts  to 
a  practical  denial  of  justice.  By  an  intelligent  and  honest 
commission,  such  questions  can  be  far  more  speedily  and 
satisfactorily  decided.  And  either  party  going  into  court 
with  its  favorable  opinion  would  be  very  apt  to  prevail. 


SOURCE   OF  COMMISSIONERS'   SALARIES.  1 99 

In  a  number  of  States,  as  in  New  York  and  Massa- 
chusetts, for  example,  the  cost  and  expenses  of  the 
commission,  including  the  commissioners'  salaries,  are 
assessed  upon  the  railroads  of  the  State,  in  proportion  to 
their  gross  earnings,  or  on  some  other  plan  equitable  to 
the  companies.  The  constitutional  power  of  the  State 
to  impose  this  expense  on  the  companies  regulated  has 
already  been  somewhat  discussed.  But  conceding  the 
power  to  exist,  the  wisdom  of  its  exercise  is  doubtful. 
For,  while  many  persons  will  probably  agree  with  Mr. 
Simon  Sterne,'  that  it  is  not  an  imposition  upon  the 
companies  to  make  them  pay  the  cost  of  a  tribunal  which 
their  peculiar  conditions  call  into  being,  yet  the  com- 
panies themselves  will  sometimes  (especially  where  the 
expense  is  considerable)  consider  it  a  very  grievous  and 
iniquitous  imposition,  and  a  strong  feeling  of  antagonism 
is  at  once  aroused. 

Moreover,  the  public  may  be  impressed  with  the  idea 
that  the  commission  is  more  or  less  robbed  of  its  inde- 
pendence when  its  salaries  come  exclusively  from  the 
railroads,  and  are  apt  to  attribute  to  this  cause  decisions 
which,  however  just,  are  favorable  to  the  companies. 
Such  a  suspicion  in  the  minds  of  the  public,  and  such 
antagonism  from  the  railways  arising  from  a  sense  of 
injustice  inflicted  upon  them,  must  detract  greatly  from 
the  usefulness  of  any  commission. 

Evils  and  abuses,  however,  will  probably  always  exist — 

'  See  Testimony,  Cull.  Com.,  p.  80. 


200  PUBLIC  REGULATION   OF  RAILWAYS. 

as  they  now  do, — even  under  the  most  judicious  system 
of  governmental  regulation.  And  this  fact,  together 
with  the  constantly  growing  tendency  to  railway  con- 
solidation, has  recently  elicited  two  propositions  con- 
templating very  radical  changes  in  the  operation  of 
the  railroad  system,  and  illustrating  an  extreme  diver- 
gence of  theoretical  views  on  the  subject.  One  of 
these  is  the  proposition  to  put  in  practice  the  old  theory 
of  railroad  operation,  and  open  transportation  over  every 
line  of  railroad  to  general  competition.  This  suggestion 
is  elaborated  at  great  length  by  Mr.  James  F.  Hudson  in 
his  able  and  interesting  work,  "  The  Railways  and  the 
Republic." 

He  would  have  a  uniform  rate  of  toll  (in  the  proper 
sense  of  the  word)  prescribed  by  law  for  each  road,  to  be 
paid,  by  parties  using  the  road,  to  its  owners.  This 
toll  to  be  a  uniform  rate  per  ton  per  mile  on  loaded 
cars,  and  a  uniform  rate  per  car  per  mile  for  empty 
cars,  over  the  same  road,  regardless  of  distance,  char- 
acter of  freight,  or  other  circumstances.  Mr.  Hudson 
concedes,  and  elaborately  attempts  to  refute,  many  of 
the  objections  to  general  competition  which  reflection 
will  readily  suggest — those,  to  wit,  growing  out  of  the 
public  necessity  of  safety  and  celerity  in  railway  trans- 
portation. 

These  objections  he  would  obviate  by  giving  to  the 
railroad  company  proper  very  large  powers  in  prescrib- 
ing schedules,  and  rules  and  regulations  for  the  running 


IMPOSSIBILITY  OF  FIXING  RATES.  201 

of  trains  over  the  road.  But  he  does  not  seem  to  have 
considered  the  objection  growing  out  of  the  public  neces- 
sity for  a  classification  of  freight  according  to  value,  and 
the  impossibility  of  maintaining  such  a  classification 
under  general  competition  and  a  system  of  uniform  tolls. 
The  two  things  certainly  could  not  exist  together.  Com- 
petitors for  traffic  would,  of  course,  seek  the  kind  of 
business  that  affords  profit — i.  e.,  articles  that  are  classed 
high, — and  the  inevitable  tendency  of  free  competition 
would  be  to  reduce  charges  to  cost  of  service  on  all  kinds 
of  trafific.  Having,  therefore,  no  excess  of  profit  on  one 
class  to  compensate  for  absence  of  profit  on  other  classes, 
the  cheapest  and  most  necessary  articles  of  commerce 
could  not  be  carried  at  all.  For  these,  as  has  been 
shown,  must  necessarily  be  transported,  if  at  all,  at 
charges  less  than  their  ratable  share  would  be  if  propor- 
tioned to  cost  of  service.  The  classification  might  in- 
deed be  applied  to  the  tolls  instead  of  the  trafific,  but  this 
would  equally  violate  the  theory  of  Mr.  Hudson,  who 
proposes  complete  uniformity  of  tolls. 

The  impossibility  of  fixing  rates  strictly  in  proportion 
to  distance  is  so  generally  conceded,  that  it  has  not  been 
discussed  at  any  length  in  the  foregoing  pages  ;  but  it 
has  been  shown  that  the  contrary  practice,  of  charging 
less  for  longer  than  shorter  distances,  is,  under  some  cir- 
cumstances, highly  essential  to  the  public  welfare.  This 
would  manifestly  be  impossible  under  general  competi- 
tion.    Indeed,  the  object  of  Mr.  Hudson  would  be,  as 


202  PUBLIC  REGULATION  OF  RAILWAYS. 

avowed  by  him,  to  make  it  impossible.  His  theory  is, 
that  the  public  welfare  requires  that  transportation 
charges  should  be  based  on  cost  of  service  alone,  to  which 
basis  general  competition  would  reduce  them.  But  if  the 
views  heretofore  advanced  are  sound,  the  public  welfare 
would  be  very  seriously  disturbed  by  the  application  of 
the  cost-of-service  principle  to  railroad  transportation,  and 
hence  general  competition  should  never  be  permitted. 

To  maintain  a  classification  based  upon  "  what  the 
trafific  will  bear,"  and  to  enable  the  transportation  com- 
panies in  certain  cases  to  charge  absolutely  more,  and  in 
all  cases  to  charge  relatively  more,  for  the  shorter  than 
the  longer  transportation,  both  of  which  things  are  fre- 
quently essential  to  the  public  good,  a  practically  exclu- 
sive control  over  the  traffic — and  not  merely  over  the 
time  and  manner  of  running  trains, — a  monopoly,  in  fact, 
would  appear  to  be  absolutely  necessary. 

Another  proposition  is  that  the  government  take  full 
control  of  the  operations  of  the  railroad  system,  on  its  own 
account,  just  as  it  operates  the  postal  department.  It 
seems  to  be  supposed  by  the  advocates  of  this  theory  that 
discriminations  in  railway  transportation  would  then  cease. 

The  chief  objection  which  has  been  suggested  to  the 
plan  is  the  vast  increase  in  governmental  patronage,  and 
consequent  political  corruption,  which  it  would  occa^ 
sion.  But  leaving  this  consideration  out  of  view,  it  is 
very  doubtful  if  discriminations  would  cease.  The  rail- 
ways can  be  acquired  only  by  purchase  or  by  the  exercise 


VALUE   OF  THE   RAILWAYS.  20$ 

of  eminent  domain,  and  either  mode  of  acquisition  in- 
volves the  payment  of  a  fair  price  for  them.  Indeed,  it 
is  quite  doubtful  whether  they  could  be  acquired  by 
the  federal  government  at  all,  without  an  amendment 
to  the  Constitution. 

But  suppose  the  government  has  the  constitutional 
power  to  become  the  owner  of  the  railroad  system.  It 
must  first  pay  for  the  property. 

Opinions  vary  greatly  as  to  the  just  value  of  the  railways 
of  the  country,  with  their  equipment,  but  the  best  authori- 
ties estimate  it  at  about  $6,000,000,000 — the  capitaliza- 
tion being  far  in  excess  of  this.  The  net  earnings  for 
several  years  past  have  averaged  about  $300,000,000, 
annually,  while  the  expenses  of  maintenance,  operation, 
etc.,  have  usually  been  nearly  double  that  amount.  To 
become  the  owner  of  the  railway  system,  then,  assuming 
the  income  to  represent  its  value — and  taking  the  whole 
system  as  a  unit,  this  would  not  be  excessive, — the  gov- 
ernment would  have  to  undertake  the  annual  payment  of 
about  $300,000,000 — to  the  present  owners.  The  acqui- 
sition of  the  roads  by  the  government  would  probably 
best  be  accomplished  by  issuing  government  bonds  to 
be  used  in  exchange  for  the  outstanding  railroad  securi- 
ties, at  a  proper  valuation. 

Thus  a  public  debt  of  a  magnitude  never  before  ap- 
proached would  be  created — say  $6,000,000,000 —  at  five 
per  cent.  Expenses  of  operation  and  maintenance  being 
nearly   double   the   amount    of    net    earnings,    the    total 


204  PUBLIC  REGULATION   OF  RAILWAYS. 

amount  to  be  annually  raised  by  the  government,  to  per- 
form the  railway  transportation  business  of  the  country 
and  pay  the  interest  on  the  additional  debt,  would  be 
about  nine  hundred  million  dollars.  Of  course  it  would 
be  preposterous  to  think  of  supplying  by  general  taxation 
any  considerable  deficiency  in  the  revenues  from  trans- 
portation. The  American  people  would  never  submit  to 
it.  The  system  would  have  to  be  not  only  self-sustain- 
ing, but  at  least  profitable  enough  to  pay  the  interest  on 
the  debt  contracted  for  its  purchase.  The  railroads  then 
must  be  made  to  earn  as  much  money  under  government 
ownership  as  they  now  do  under  private  ownership. 
There  is  no  doubt  that  the  present  system  of  discrimina- 
tions is  the  means  by  which  railroad  earnings  have  been 
raised  to  their  present  figures.  These  discriminations,  as 
has  been  shown,  are  sometimes  unfortunate,  but  they  are 
not  necessarily  unjust,  while  they  are  necessary  to  main- 
tain revenues.  Certain  discriminations  which  the  rail- 
ways have  endeavored  to  obviate  by  pooling  would,  no 
doubt,  be  more  effectually  checked  under  public  owner- 
ship, the  effect  of  which  would  indeed  be  to  bring  the 
whole  railroad  system  under  one  vast  pool. 

But  discriminations  arising  from  water  competition  and 
from  the  comparative  natural  advantages  of  different 
rail  routes  would  still  exist,  and  it  is  difficult  to  see  how 
government  could  abolish  them  without  doing  an  injus- 
tice, which  would  never  be  tolerated,  to  sections  of  coun- 
try enjoying  superior  natural  advantages. 


GOVERNMENT  OWNERSHIP.  20$ 

But  apart  from  the  foregoing  considerations  is  that  of 
the  influence  which,  under  government  ownership,  differ- 
ent sections  of  the  Union,  according  to  their  various 
interests,  would  exert  in  the  public  management  of  the 
railroad  system,  and  in  the  establishment  of  classifications, 
rates,  traffic  connections,  etc.,  etc.  The  inevitable  prone- 
ness  of  representative  men  to  seek  to  promote  the  com- 
mercial interests  of  their  immediate  constituencies  at  the 
expense  of  other  portions  of  the  country,  is  constantly 
observable.  It  can  hardly  be  doubted  that  under  gov- 
ernmental ownership  of  railways  there  would  be  worked 
out,  either  by  legislation  or  by  departmental  rules,  a 
system  of  sectional  discriminations  worse  than  any  which 
under  private  ownership  can  possibly  be  imposed. 

Government  probably  would  not  fall  into  the  error  of 
building  unnecessary  lines  of  road,  and  this  would  be  an 
undoubted  advantage  of  public  ownership.  But,  on  the 
other  hand,  it  is  likely  that  the  development  of  new 
territory  would  be  seriously  retarded  by  the  refusal  of 
government  to  extend  the  railway  system,  except  under 
circumstances  likely  to  make  the  extension  immediately 
remunerative,  or  at  least  self-sustaining. 


CHAPTER    VIII. 

THE   INTERSTATE   COMMERCE   ACT. 

Analysis  of  the  Act — Powers  of  Commission — Decisions  con- 
cerning Long  and  Short  Haul — Discriminations  between 
Places,  Persons,  and  Kinds  of  Traffic — Effects  of  the 
Act — Tendency  toward  Combination — A  Railway  *'  Trusts 

The  legislation  recently  enacted  by  Congress  for  the 
regulation  of  commerce  by  railway  is  the  result  of  more 
careful  and  intelligent  deliberation  perhaps  than  any 
other  measure  of  similar  character,  and  it  is  not  unlikely 
that  the  legislation  of  many  of  the  States  will  sooner  or 
later  be  conformed  to  it.  The  general  provisions  in- 
tended to  prevent  extortion  and  unjust  discrimination 
are  not  unlike  those  which  have  already  been  discussed. 
The  powers  conferred  by  the  act  upon  the  commission- 
ers are  in  a  certain  sense  judicial,  inasmuch  as  they  are 
authorized  to  hear  and  decide  complaints  of  violations  of 
the  law.  Yet  their  decisions  lack  the  finality  and  bind- 
ing effect  of  the  judgments  of  a  court,  and  are  not  en- 
forcible  by  any  process  issuable  by  the  commission  itself. 
The  enforcement  of  their  decisions  is  left  to  the  regular 
courts,  where  the  conclusions  and  findings  of  fact  of  the 

?o6 


PROVISIONS  OF   THE  ACT.  20/ 

commission,  though  held  to  be  prima  facie  correct,  may 
on  sufficient  grounds  be  reversed.  To  have  conferred 
strictly  judicial  powers  on  the  federal  commission  would 
have  been  to  make  of  it  a  court,  of  which  the  members 
under  the  constitution  hold  office  for  life,  and  not  for 
a  mere  term  of  years.  Its  functions  are,  perhaps,  as 
nearly  judicial  as  could  be  made,  without  conferring  a 
life  tenure  upon  its  members.  The  powers  of  the  com- 
mission in  administering  the  law  are  also  limited  by 
analogy  to  those  of  the  regular  courts ;  inasmuch  as 
they  cannot  decide  upon  hypothetical  or  ex-parte  state- 
ments of  cases,  but  only  upon  complaints  of  actual 
infraction  of  the  law  duly  presented  and  verified.  Con- 
siderable verbiage  is  used  in  the  act  of  Congress  to  define 
and  limit  the  subjects  to  which  it  is  intended  to  apply, 
and  the  attempt  at  too  much  detail  in  specification  may 
give  room  for  construction  which  will  rob  the  measure 
of  some  of  its  desired  effect ;  that  is,  if  its  object  was,  as 
commonly  supposed,  the  regulation  of  all  such  commerce 
carried  on  by  railroads  as  Congress  is  empowered  to 
regulate. 

The  provisions  of  the  act  apply  to  common  carriers 
engaged  in  transportation  "  wholly  by  railroad,  or  partly 
by  railroad  and  partly  by  water,  when  both  are  used, 
under  a  common  control,  management,  or  arrangement, 
for  a  continuous  carriage  "  from  State  to  State,  etc. 

This  language  confines  the  scope  of  the  law  within 
much  narrower  limits  than  might,  under  the  authority  of 


208  PUBLIC  REGULATION  OF  RAILWAYS. 

the  Constitution,  have  been  fixed ;  for  it  exempts  from 
its  operation  commerce  carried  on  by  two  independent 
agencies,  one  of  which  operates  by  water ;  and  it  contem- 
plates, apparently,  a  continuous  carriage  from  State  to 
State,  etc.  And  although  Section  7  of  the  act  is  in- 
tended to  prevent  evasions  of  its  purpose  by  any  breach 
in  the  continuity  of  the  carriage  made  intentionally  to 
evade  it,  yet  it  seems  probable  that  the  terms  of  the  law 
fail  to  cover  some  very  important  cases  of  interstate 
commerce  carried  on  by  rail.  The  provisions  of  the  act 
apply  to  both  passenger  and  freight  transportation.  All 
charges  made  for  or  in  connection  with  transportation 
services,  or  for  receiving,  storing,  handling,  and  deliver- 
ing freight,  are  required  to  be  "just  and  reasonable,"  and 
*'  every  unjust  and  unreasonable  charge  for  such  service  is 
prohibited  and  declared  to  be  unlawful."  On  the  general 
subject  of  discriminations  it  is  declared  to  be  unlawful, 
for  any  common  carrier  subject  to  the  provisions  of  the 
act,  "  to  make  or  give  any  undue  or  unreasonable  prefer- 
ence or  advantage  to  any  particular  person,  company, 
firm,  corporation,  or  locality,  or  any  particular  description 
of  traffic,  in  any  respect  whatsoever,  or  to  subject  any 
particular  person,  firm,  company,  corporation,  or  locality, 
or  any  particular  description  of  trafific,  to  any  undue  or 
unreasonable  prejudice  or  disadvantage,  in  any  respect 
whatsoever." 

It  is  also  provided  that  "  every  common  carrier  subject 
to  the  provisions  of  this  act  shall,  according  to  their  re- 


INTERCHANGE   OF   TRAFFIC.  209 

spective  powers,  afford  all  reasonable,  proper,  and  equal 
facilities  for  the  interchange  of  trafific  between  their  re- 
spective lines,  and  for  the  receiving,  forwarding,  and  deliv- 
ering of  passengers  and  property,  to  and  from  their  several 
lines,  and  those  connecting  therewith,  and  shall  not  dis- 
criminate in  their  rates  and  charges  between  such  con- 
necting lines  ;  but  this  shall  not  be  construed  as  requiring 
any  such  common  carrier  to  give  the  use  of  its  tracks  or 
terminal  facilities  to  another  carrier  engaged  in  like  busi- 
ness." The  expression  "  interchange  of  trafific,"  used  in 
this  connection,  generally  conveys  the  idea  of  a  railway 
company  hauling  the  cars  of  connecting  Hues  over  its 
track  without  breaking  bulk  or  transferring  the  contents 
of  loaded  cars  from  the  vehicles  of  one  company  to  those 
of  the  other.  But  it  can  hardly  be  said  that  such  a  mean- 
ing is  so  well  settled  as  to  make  it  certain  that  the  courts 
will  give  that  construction  to  the  language.  This  effect 
was  probably  intended,  but  it  would  have  been  prudent 
to  use  more  explicit  terms  ;  for,  as  has  been  previously 
pointed  out,  the  Supreme  Court  has  decided  that  lan- 
guage merely  forbidding  discrimination,  and  requiring 
equal  facilities  to  be  given,  will  not  authorize  the  courts 
to  compel  a  railroad  company  to  make  joint  through- 
trafBc  arrangements  with  all  connecting  roads,  merely  be- 
cause it  chooses  to  make  such  arrangements  by  contract 
with  one  ok  more  particular  roads.  The  English  **  Rail- 
way and  Canal  Trafific  Act  "  has  been  construed  to  have 
the   effect   of    preventing   discrimination    of    that   kind, 


210  PUBLIC  REGULATION  OF  RAILWAYS. 

although  the  expression  "  interchange  of  traffic  "  is  not 
used  in  it.  But  the  act  of  Congress  departs  from  the 
terms  of  the  English  law  in  this  particular,  and  it  would 
be  hazardous  to  attempt  any  forecast  of  the  construction 
which  will  be  given  it.  Any  thing  like  general  competi- 
tion over  the  same  line  of  railway  is  of  course  precluded 
by  the  provision  that  no  company  "  shall  be  required  to 
give  the  use  of  its  tracks  and  terminal  facilities  to  another 
carrier  engaged  in  like  business."  The  language  forbidding 
discriminations  between  persons,  localities,  and  descrip- 
tions of  traffic,  it  will  be  observed,  is  identical  with  that 
of  the  English  provision  on  the  same  subject,  which  has 
been  construed  as  requiring  charges  to  be  based  in  large 
measure  on  cost  of  service  alone.  But  the  general  spirit 
of  the  federal  law  manifestly  contemplates  that  other 
considerations  besides  mere  cost  of  service  should  enter 
into  the  charges  of  railways,  and  will  preclude  the  com- 
mission and  the  courts  from  giving  such  a  construction 
to  the  language.  In  addition  to  the  general  anti-dis- 
crimination clauses  above  quoted,  the  act  contains  one 
provision  directed  specifically  against  personal  discrimina- 
tions, and  another  against  one  class  of  local  discrimina- 
tions. And  both  these  provisions  contain  limiting  clauses 
of  very  great  importance,  upon  which  widely  different 
constructions  were  placed  in  the  discussions  of  the 
measure  in  the  houses  of  Congress.  By  the  £rst  of  these 
provisions,  common  carriers  subject  to  the  operation  of 
the  act  are  forbidden  to  charge  more  to  one  person  than 


CIRCUMSTANCES  AND   CONDITIONS.  2II 

another  for  "  a  like  and  contemporaneous  service  in  the 
transportation  of  a  Hke  kind  of  trafific  under  substantially 
similar  circumstances  and  conditions,"  and  any  evasion  of 
this  provision  by  special  rate,  rebate,  drawback,  or  other 
device  is  prohibited.  By  the  other  provision  it  is  made 
"  unlawful,  for  any  common  carrier  subject  to  the  pro- 
visions of  this  act,  to  charge  or  receive  any  greater  com- 
pensation in  the  aggregate  for  the  transportation  of  pas- 
sengers, or  of  like  kind  of  property,  under  substantially 
similar  circumstances  atid  conditions,  for  a  shorter  than  for 
a  longer  distance  over  the  same  line  in  the  same  direc- 
tion, the  shorter  being  included  within  the  longer 
distance." 

But  upon  application  to  the  commission  provided 
for  by  the  act,  "  such  common  carrier  may  in  special 
cases,  after  investigation  by  the  commission,  be  author- 
ized to  charge  less  for  longer  than  for  shorter  distances, 
for  the  transportation  of  passengers  or  property  ;  and  the 
commission  may  from  time  to  time  prescribe  the  extent 
to  which  such  designated  common  carrier  may  be  relieved 
from  the  operation  of  this  "  rule. 

The  "  circumstances  and  conditions  "  which  appear  to 
justify  a  lesser  charge  for  the  longer  haul  have  already 
been  discussed,  and  if  the  conclusions  arrived  at  are 
sound,  the  cases  which  should  be  excepted  from  the 
long-  and  short-haul  rule  are  very  numerous  and  very 
important. 

Agreements  "  for  the  pooling  of  freights  of  different 


212  PUBLIC  REGULATION  OF  RAILWAYS. 

and  competing  railroads,  or  to  divide  between  them  the 
aggregate  or  net  proceeds  of  the  earnings  of  such  rail- 
roads," are  prohibited,  and  each  day  of  the  continuance 
of  a  pooling  agreement  is  made  a  separate  offence. 
Some  observations  on  the  methods,  objects,  and  results 
of  pooling  have  already  been  submitted.  The  object,  of 
course,  is  to  maintain  rates,  and  the  division  of  earnings  is 
resorted  to  as  the  means  of  enforcing  the  agreement  to 
maintain  rates.  The  federal  law  does  not  prohibit  agree- 
ments for  this  purpose,  but  is  only  directed  against  one 
of  the  means — (that  of  pooling) — which  has  been  devised 
to  uphold  such  agreements.  Every  carrier  subject  to 
the  act  is  required  to  print  and  post  for  public  inspection 
at  its  depots  and  stations,  schedules  of  the  passenger  and 
freight  rates  "  in  force  at  the  time  upon  its  route."  And 
"  the  schedules  printed  as  aforesaid  by  any  such  common 
carrier  shall  plainly  state  the  places  upon  its  railroad 
between  which  property  and  passengers  will  be  carried, 
and  shall  contain  the  classification  of  freight  in  force,  and 
shall  also  state  separately  the  terminal  charges,  and  any 
rules  or  regulations  which  in  any  wise  change,  affect,  or 
determine  any  part  or  the  aggregate  "  of  charges  made. 
No  advance  in  the  rates  so  published  and  posted  can 
be  made  except  after  ten  days  public  notice,  and  no 
reduction  except  after  three  days  public  notice.  To 
charge  more  or  less  than  schedule  rates  is  specifically 
forbidden,  and  declared  to  be  unlawful.  Copies  of  the 
schedules  of  rates  are  to  be  filed  with  the  commission, 


SCHEDULE   OF  RATES.  213 

who   are   also  to  be   promptly  notified   of   any  changes 
made  in  the  schedules. 

"  Every  such  common  carrier  shall  also  file  with  said 
commission  copies  of  all  contracts,  agreements,  or  ar- 
rangements with  other  common  carriers  in  relation  to 
any  trafific  affected  by  the  provisions  of  this  act,  to  which 
it  may  be  a  party.  And  in  cases  where  passengers  and 
freight  pass  over  continuous  lines  or  routes  operated  by 
more  than  one  common  carrier,  and  the  several  common 
carriers  operating  such  lines  or  routes  establish  joint 
tariffs  of  rates  or  fares  or  charges  for  such  continuous 
lines  or  routes,  copies  of  such  joint  tariffs  shall  also  in 
like  manner  be  filed  with  said  commission."  Advances 
in  joint  rates  can  only  be  made  after  ten  days'  notice 
to  the  commission,  and  reductions  in  them  only  after 
three  days'  notice  to  the  commission.  Variations  from 
the  joint  tariffs  as  filed  with  the  commission  are  also  ex- 
pressly forbidden  and  declared  to  be  unlawful.  These 
joint  tarifTs,  as  well  as  changes  in  joint  rates,  are  to  be 
made  public  when  and  to  the  extent  directed  by  the 
commission  ;  being  thus  put  by  the  law  on  quite  a  dif- 
ferent footing,  as  regards  publicity  at  least,  from  the 
tariffs  of  a  single  road  under  one  control  and  manage- 
ment. The  latter,  and  all  changes  in  them,  are  impera- 
tively required  to  be  made  public,  the  commission  having 
no  discretion  on  the  subject.  Ample  provision  is  made 
for  the  enforcement,  by  the  federal  courts,  of  the  law 
requiring   publicity  of    tariffs.      By  the   above  outlined 


214  PUBLIC  REGULATION  OF  RAILWAYS. 

provisions,  extortion  and  unjust  discrimination  in  rail- 
road management  are  sought  to  be  prohibited.  Viola- 
tions of  the  law  may  be  visited  with  criminal  penalties  in 
the  federal  courts,  and  any  person  damaged  thereby  may 
sue  in  those  courts  for  the  recovery  of  such  damages  and 
costs,  including  a  reasonable  attorney's  fee.  Underbilling 
and  false  classification  of  freight,  both  by  the  carrier 
and  its  officers  who  permit  it,  and  by  the  shipper  who 
practises  it,  are  made  misdemeanors  punishable  by  fine 
and  imprisonment,  as  is  also  the  securing  of  unjust 
advantages  in  transportation  by  improper  solicitation 
or  bribery.  One  of  the  most  important  provisions 
of  the  law  is  that  of  creating  a  commission  and  defining 
its  powers.  This  body  consists  of  five  members  ap- 
pointed by  the  President  and  confirmed  by  the  Senate, 
who  are  authorized  and  required  to  execute  and  enforce 
the  provisions  of  the  law,  acting  for  this  purpose  through 
the  proper  law  officers  of  the  United  States,  and  at  the 
cost  of  the  government.  They  are  also  required  to  keep 
themselves  informed  as  to  the  business  of  all  carriers 
subject  to  the  act,  and  are  empowered  to  obtain  all  the 
information  necessary  for  the  discharge  of  their  duties. 
For  this  purpose  they  are  authorized  to  examine  wit- 
nesses, and  to  require  the  production  of  the  books, 
papers,  contracts,  etc.,  of  railroad  companies ;  and  the 
attendance  of  witnesses  and  production  of  papers  may  be 
compelled  by  the  courts  if  necessary.  On  complaint 
made  by  any  person,  association,  etc.,  or  forwarded  by 


NEGLECT  OF  CARRIER.  21 5 

the  railroad  commission  of  any  State,  they  shall  notify 
the  company  complained  of  to  satisfy  the  complaint  or 
answer  the  same  in  writing  within  a  reasonable  specified 
time.  Unless  the  complaint  is  satisfied  the  commission 
must  investigate  it,  if  there  are  reasonable  grounds  for 
doing  so  (or  it  may  of  its  own  motion  without  complaint 
investigate  any  matter) ;  and  must  make  a  report  on  the 
investigation,  which  shall  include  both  the  findings  of 
fact  and  the  recommendations  of  the  commission.  Such 
findings  of  fact  are  to  be  held  prima  facie  correct  and 
true  in  all  subsequent  judicial  proceedings.  Where  the 
conclusion  of  the  commission  is  against  the  railroad  com- 
pany, the  latter  shall  be  served  with  a  copy  of  the  report, 
and  notified  to  cease  from  violation  of  the  law,  within  a 
reasonable  specified  time.  If  the  carrier  neglects  or 
refuses  to  obey  the  order  of  the  commission,  it  shall  be 
lawful  for  the  commission,  or  for  any  person  interested 
in  the  order,  to  apply  to  the  federal  courts  for  an  injunc- 
tion to  restrain  the  further  violation  of  the  law,  or  to 
enforce  compliance  with  the  orders  of  the  commission. 
In  this  way  the  matter  comes  for  hearing  before  the 
regular  courts,  where  the  action  of  the  commission  may 
be  either  affirmed  or  reversed.  Obedience  to  the  injunc- 
tion of  the  court — where  the  action  of  the  commission, 
is  affirmed — may  be  enforced  by  pecuniary  penalties 
payable  to  the  complainant,  or  otherwise  as  the  court  may 
direct ;  and  this  penalty  may  be  imposed  on  officers  of 
the  railroad,  as  well  as  on  the  company    itself.     When 


2l6  PUBLIC  REGULATION   OF  RAILWAYS. 

such  an  application  to  the  courts  is  made  by  the  commis- 
sion, it  shall  be  through  the  district  attorney,  and  at  the 
cost  of  the  United  States.  And  for  the  purpose  of 
making  all  needful  decrees  and  orders,  in  the  matter  of 
such  applications,  the  courts  shall  be  deemed  to  be  always 
in  session.  Any  party  may  appear  and  be  heard  before 
the  commission  in  person  or  by  attorney,  and  its  pro- 
ceedings shall  be  public  upon  the  request  of  any  person 
interested.  The  commissioners  are  authorized  to  require 
every  railroad  company  subject  to  their  jurisdiction,  to 
make  an  annual  report  containing  a  complete  exhibit  of 
its  operations  and  finances,  rates,  trafific  agreements,  con- 
tracts with  other  carriers,  etc.,  etc.  They  are  required  to 
make  an  annual  report  of  their  own  work  to  Congress, 
together  with  such  information,  recommendations,  and 
data,  as  they  may  deem  necessary. 

It  was  of  course,  to  be  expected  that  any  measure  intro- 
duced into  Congress,  to  place  the  vast  railway  interests  of 
the  country  under  legal  restraints  and  public  supervision, 
would  encounter  strenuous  opposition.  The  debates  in 
the  two  houses  during  the  session  of  1886-7  furnish 
ample  illustration.  The  principal  controversies  arose 
over  the  question  of  pooling,  and  of  the  long  and  short 
haul.  The  result  as  to  pooling  was  the  provision  totally 
forbidding  the  practice.  In  the  case  of  the  long  and 
short  haul,  the  result  was  the  adoption  of  the  clause 
limiting  the  prohibition  to  charge  more  for  the  latter 
than  the  former,   to  cases  where  the  circumstances  and 


REFUSAL    OF   THE   COMMISSIONERS.  2\y 

conditions  are  substantially  similar,  with  a  proviso  tliat 
this  should  not  be  construed  as  allowing  as  great  a  charge 
for  the  short  as  for  the  long  haul. 

When  the  law  first  went  into  effect  frequent  applica- 
tions were  made  by  the  railroads  to  the  commissioners  for 
their  opinion  as  to  what  circumstances  and  conditions 
would  justify  the  greater  charge  for  the  shorter  transporta- 
tion. Many  companies  sought  upon  their  own  statement 
of  the  circumstances  and  conditions  surrounding  their 
business,  to  elicit  an  opinion  as  to  their  rights,  in  advance 
of  any  complaint  against  them  of  infraction  of  the  law. 

The  commissioners  very  properly  invariably  refused  to 
forestall  their  conclusions  in  this  way,  declaring  that  the 
railroad  companies  must  in  the  first  instance  decide  for 
themselves  what  circumstances  and  conditions  will  justify 
a  departure  from  the  general  rule. 

Certain  general  principles,  however,  were  early  an- 
nounced by  the  commission  as  a  guide  to  the  carriers  in 
their  operations  under  this  section  of  the  act.'  The 
phrase  "  under  substantially  similar  circumstances  and 
conditions,"  in  the  long-  and  short-haul  clause,  is  declared 
to  have  the  same  meaning  as  it  has  in  the  section  forbid- 
ding personal  discriminations.  The  burden  of  proving  a 
dissimilarity  of  circumstances,  etc.,  is  on  the  carrier  who 
violates  the  general  rule.  Charges  must  be  reasonable, 
and  unjust  discriminations  are  forbidden,  even  where  the 

'  See  Report  Interstate  Commission.  1887,  p.  84,  and  ist  Interstate 
Commerce  Reports,  p.  278.     (The  Louisville  and  Nashville  case.) 


2l8  PUBLIC  REGULATION  OF  RAILWAYS. 

general  rule  may  be  lawfully  departed  from.  It  is  not  a 
sufiflcient  justification  for  a  departure  from  the  general 
rule,  that  the  traffic  which  is  subjected  to  the  greater 
charge  is  way  or  local  traffic,  while  that  which  receives 
the  more  favorable  rates  is  not ;  nor  that  the  short-haul 
traffic  is  more  expensive,  unless  the  greater  expense  is 
exceptional  and  susceptible  of  definite  proof ;  nor  that 
the  motive  of  the  lesser  charge  for  the  longer  haul  is  the 
encouragement  of  manufactures ;  nor  that  it  is  designed 
to  build  up  business  or  trade  centres. 

"  The  fact,"  says  the  commission,  "  that  long-haul  traffic 
will  only  bear  certain  rates  is  no  reason  for  carrying  it  at 
less  than  cost  at  the  expense  of  other  traffic."  In  refer- 
ence to  what  will  justify  a  departure  from  the  general 
rule,  the  commission  says  :  "  That  the  existence  of  actual 
competition,  which  is  of  controlling  force  in  respect  to 
traffic  important  in  amount,  may  make  out  the  dissimilar 
circumstances  and  conditions  entitling  the  carrier  to 
charge  less  for  the  longer  than  the  shorter  haul,  over  the 
same  line  in  the  same  direction,  the  shorter  being  in- 
cluded in  the  longer,  in  the  following  cases:  i.  When  the 
competition  is  with  carriers  by  water  which  are  not  subject 
to  the  provisions  of  the  statute.  2.  When  the  competition 
is  with  foreign  or  other  railroads  which  are  not  subject  to 
the  provisions  of  the  statute.  3.  In  rare  and  peculiar  cases 
of  competition  between  railroads  which  are  subject  to  the 
statute,  when  a  strict  application  of  the  general  rule  of 
the  statute  would  be  destructive  of  competition." 


INCREMENT  OF  PROFIT.  219 

It  will  be  observed  that  the  commission  declares  the 
existence  of  competition  to  justify  a  greater  charge  for 
the  shorter  haul  ;  but  confines  it,  where  the  competing 
roads  are  all  subject  to  the  act,  to  "  rare  and  peculiar 
cases.  .  .  .  when  a  strict  application  of  the  general 
rule  would  be  destructive  of  competition."  This  is  a 
somewhat  narrower  application  of  the  principle  of  ex- 
ception to  the  general  rule  of  the  long  and  short  haul, 
than  that  which  has  been  suggested  as  the  correct  one  in 
the  preceding  pages.  The  maintenance  of  competition 
seems  to  be  the  only  object  had  in  view  by  the  commis- 
sion in  allowing  the  exception.  But  it  has  been  shown 
that  while  the  existence  of  competition  is  the  sole  justi- 
fication of  departure  from  the  general  rule,  the  Diain- 
tenance  of  that  principle  is  by  no  means  the  only  public 
benefit  that  may  result  therefrom.  It  is  quite  conceiv- 
able, and  probably  frequently  happens,  that  competition 
may  be  maintained  without  any  departure  from  the  gen- 
eral rule.  There  may  be  several  competitors,  a  few  of 
whom  may  be  so  fortunately  circumstanced  that  they  can 
comply  with  the  general  rule  and  still  prosper.  These  few 
may  maintain  the  competition.  The  other  competitors 
may  be  weak  lines  which,  by  reason  of  the  relatively  small 
volume  of  their  local  traffic,  or  otherwise,  must  take  the 
competitive  trafific,  if  at  all,  under  the  exception  to  the 
general  rule.  They  may  do  this  and  still  derive  an  mcre- 
■ment  of  profit  from  it,  which  enures  to  the  benefit  of  the 
local  communities  which  they  serve.      This  certainly  is  a 


220  PUBLIC  REGULATION  OF  RAILWAYS. 

public  benefit — not,  indeed,  arising  from  competition,  but 
from  a  diffusion  and  partial  equalizing  of  commercial 
advantages  between  different  sections  as  has  been  hereto- 
fore explained.  The  stronger  competing  lines  in  the  case 
supposed  would  probably  complain  of  the  competition 
of  the  weaker  line  as  "  illegitimate  "  ;  and  under  some 
circumstances  doubtless  it  might  be  so.  But  the  ille- 
gitimacy would  seem  frequently  to  consist  only  in  divert- 
ing a  portion  of  the  profits  the  former  might  make 
into  the  treasury  of  the  latter,  while  the  general  public 
good  would  undoubtedly  be  promoted. 

The  commission,  while  construing  the  fourth  section  of 
the  act  (the  long-  and  short-haul  section)  to  restrict  their 
powers  in  this  regard,  are  evidently  of  opinion  that  its 
enforcement  under  their  construction  may  sometimes  be 
inequitable,  and  prejudicial  to  the  interests  even  of  the 
local  traffic.  This  appears  from  the  opinion  in  the  case 
of  the  Boston  &  Albany  R.  R.  Co.  vs.  The  Boston  & 
Lowell  R.  R.  and  other  companies  (Interstate  Com. 
Repts.,  vol.  i.,  p.  571).  In  that  case  an  association 
composed  of  the  Boston  &  Lowell  and  other  roads, 
forming  with  it  a  line  from  Boston  through  Massachu- 
setts, New  Hampshire,  Vermont,  and  Canada,  to  Montreal, 
Detroit,  and  Chicago,  under  the  name  of  the  National 
Dispatch  Line,  joined  in  fixing  rates  from  Boston  to  the 
points  named. 

And  the  rates  fixed  from  Boston  to  those  points  were 
less  than  the  rates  charged   over  a  portion  of  the  roads 


PHYSICAL  LINES.  221 

composing  the  Dispatch  Line  from  Boston  to  St.  Albans, 
Vermont,  an  intermediate  point. 

The  commission  considered  the  word  "  line "  in  the 
fourth  section  to  refer  to  a  physical  line,  not  a  business 
connection.  And  they  had  "  no  difficulty  in  holding  that 
if  the  defendants  join  in  making  the  tariff  which  consti- 
tutes the  lesser  charge  on  the  longer  haul,  while  one  or 
more  of  their  number  make  the  greater  charge  on  the 
shorter  haul,  the  case  is  within  the  fourth  section,  and 
those  who  make  such  greater  charge  are  called  upon  to 
justify  it." 

Justification  was  sought  to  be  established  on  the  ground 
of  competition  which  existed  at  Montreal,  Detroit,  and 
Chicago,  but  not  at  St.  Albans,  and  there  was  strong  evi- 
dence to  show  that  rates  on  the  through  traffic  could  not 
be  materially  advanced  without  losing  it,  and  that  such 
traffic  at  existing  rates  added  largely  to  net  earnings. 
Also  that  the  companies  could  not  afford  to  reduce  rates 
on  local  traffic. 

The  commission  declared  itself  "  entirely  satisfied  that 
a  large  through  business  is  essential  to  this  line,  if  it  is  to 
continue  to  be  a  useful  line  even  for  local  business."  It 
was  also  said  that  "  no  injustice  is  done  to  the  local  traffic 
by  taking  through  traffic  at  very  low  rates,  provided  the 
doing  so  neither  makes  the  local  traffic  more  expensive, 
nor  otherwise  incommodes  it."  And  it  was  plainly  inti- 
mated that  "a  board  having  full  power  to  adjust  rates  as 
circumstances  should  seem  to  require,"  might  hold  differ- 


222  PUBLIC  REGULATION  OF  RAILWAYS. 

ently  from  the  commission  acting  under  the  positive  man- 
dates of  a  statute.  But  it  being  established  by  the  evi- 
dence that  the  competition  which  affected  the  action  of 
the  defendant  roads  was  that  of  the  trunk  Hnes,  all  of 
which  were  under  the  jurisdiction  of  the  commission,  it 
was  held  that  the  "  circumstances  and  conditions  "  justify- 
ing a  greater  charge  for  the  shorter  haul  were  not  estab- 
lished, and  the  defendants  were  ordered  to  desist  from  the 
practice. 

One  of  the  most  important  decisions  of  the  commission 
is  that  rendered  "  in  the  matter  of  the  Chicago,  St.  Paul 
&  Kansas  City  R.  R.  Co."  (to  be  reported  in  2d  Interstate 
Com.  Repts.).  The  company  named  having  been  com-r 
pelled  by  the  action  of  competing  lines,  and  in  conformityi 
with  the  requirements  of  the  long-  and  short-haul  law,  to 
make  repeated  changes  in  its  tariff  within  a  brief  period 
of  time,  finally  notified  the  commission  of  its  intention  to 
adopt  a  tariff  by  which  a  lesser  charge  would  be  made 
between  Chicago  and  St.  Paul  than  between  Chicago  and 
intermediate  places. 

Being  cited  before  the  commission  to  justify  this  action 
if  possible,  the  company  attempted  to  do  so  by  showing 
that  a  rival  in  the  Chicago-St.  Paul  business  had  reduced 
its  rates  to  figures  that  failed  to  pay  operating  expenses, 
and  that  the  same  fate  threatened  its  own  revenues  unless 
it  should  be  allowed  to  meet  the  rival's  rates  at  terminal 
points  without  making  corresponding  reductions  at  inter- 
mediate places.     It  was  clearly  pointed  out  that  the  "  ad- 


POWER   OF  THE   COMMISSION.  223 

ditional  expense  "  of  the  competitive  traffic  was  small, 
even  compared  with  the  excessively  low  charges  upon  it, 
and  it  was  shown  with  equal  clearness  that  a  general  re- 
duction of  charges  in  conformity  with  the  long-  and  short- 
haul  rule  would  result  in  serious  financial  disaster.  It  was 
insisted  that  the  uncontrolled  action  of  a  rival  road  in  fix- 
ing transportation  charges  at  figures  unreasonably  low, 
should  be  held  to  constitute  a  case  of  dissimilar  circum- 
stances and  conditions,  justifying  a  greater  charge  on  a 
shorter  haul.  Finally,  it  was  forcibly  urged  that  such  ac- 
tion on  the  part  of  a  road  within  the  Jurisdiction  of  the 
commission  was  subject  to  the  control  of  the  commission, 
and  that  the  section  of  the  law  requiring  all  railroad 
charges  to  be  reasonable  and  just,  and  forbidding  all 
unjust  and  unreasonable  charges,  "  prohibits  and  makes 
unlawful  a  rate  or  charge  which  is  too  low,  as  well  as 
a  rate  or  charge  which  is  too  high  Xo  be  just  and 
reasonable."  Seeing  that  the  commission  had  in  sev- 
eral instances  actually  specified  and  fixed  rates  which 
in  its  opinion  would  be  just  and  reasonable — although 
no  power  to  fix  charges  was  expressly  conferred  by  the 
interstate  law, — the  position  here  taken  by  the  railroad 
company  as  to  the  powers  of  the  commission  does  not 
seem  wholly  unsupported.  And  indeed  it  was  said  in 
the  opinion :  "  Possibly  if  the  statute  were  to  be  inter- 
preted without  any  aid  from  its  history,  and  with  no 
other  knowledge  of  its  purposes,  aims,  and  ends,  than 
such  as  may  be  derived  from   its  provisions,  a  holding 


224  PUBLIC  REGULATION  OF  RAILWAYS. 

that  a  rate  unreasonably  low  was  forbidden  might  be 
justified,  or  at  least  might  be  urged  upon  plausible  argu- 
ments. "  But  every  statute  is  to  be  read  in  the  light  of 
its  history  and  of  the  evils  it  was  intended  to  redress. 
And  as  matter  of  public  history  nothing  can  be  more 
notorious  than  that  the  act  to  regulate  commerce  had  for 
its  leading  and  general  purpose,  to  which  other  purposes 
were  subordinate,  to  provide  effectual  securities  that  the 
general  public  in  making  use  of  the  means  of  railroad 
transportation  provided  by  law  for  their  service,  should 
have  the  benefits  which  the  law  had  undertaken  to  give, 
but  of  which  in  very  many  cases  it  was  found  the  parties 
entitled  to  them  were  deprived  by  the  arbitrary  conduct, 
the  favoritism,  or  the  unreasonable  exactions  of  those 
who  managed  them.  It  may  be  affirmed  with  entire 
confidence  that  the  act  was  not  passed  to  protect  rail- 
road corporations  against  the  misconduct  or  the  mistakes 
of  their  officers,  or  even  primarily  to  protect  such  cor- 
porations against  each  other."  The  terms  "  just  and 
reasonable  "  in  the  statute  "  were  employed  to  establish  a 
maximum  limitation  for  the  protection  of  the  public  ; 
not  a  minimum  limitation  for  the  protection  of  reckless 
carriers  against  their  own  action.  .  .  .  But  we  cannot 
agree  that  because  the  commission  has  no  authority  to 
require  a  carrier  to  increase  the  rates  it  has  voluntarily 
established  on  its  line,  the  competition  of  carriers  who 
come  under  the  act  to  regulate  commerce  is  subject 
to  no  more  restraint  than  is  that  of  others.     It  may  per- 


RESTRAINING  INFLUENCES.  22$ 

haps  be  subject  to  no  restraint  directly  applied ;  but 
many  of  the  requirements  of  the  act  must  have  an 
important  restraining  influence."  And  having  referred 
to  several  provisions  of  the  interstate  commerce  law 
tending  to  restrain  undue  competition,  the  commission 
further  remarked  :  "  It  may  be  quite  true  as  respondent 
contends,  that  unless  other  carriers  are  suffered  to  meet 
the  competition  of  a  rival  at  an  important  point,  without 
reducing  intermediate  rates,  they  will  suffer  unreason- 
ably, perhaps  destructively,  in  their  resources.  But  this 
question  is  not  to  be  decided  on  the  interest  of  the 
carriers  only ;  the  communities  which  the  act  undertakes 
to  protect  are  to  be  regarded  also.  The  act  has  doubt- 
less conferred  upon  the  commission  a  greater  power  to 
protect  localities  against  the  carriers,  than  it  has  to 
protect  the  carriers  against  themselves,  or  against  each 
other.  It  was  probably  thought  in  Congress  that  with 
the  liberty  of  action  left  to  the  carriers,  they  would  not 
needlessly  rush  to  destruction.  The  assumption  may  not 
prove  to  be  well  founded  ;  but  nothing  seems  plainer 
than,  that  under  the  law  as  it  stands,  the  protection  of 
carriers  against  destructive  rivalry,  and  rates  that  lead 
directly  to  bankruptcy,  must  be  found  chiefly  in  prudent 
management,  in  the  cultivation  of  reasonable  relations 
among  themselves,  in  mutual  forbearance,  and  the  appli- 
cation of  a  sense  of  justice  to  their  mutual  dealings  and 
in  their  rivalries.  If  they  deliberately  proceed  to  destroy 
each  other,  the  law  must  take  care  that  in  doing  so  they 


226  PUBLIC  REGULATION  OF  RAILWAYS. 

injure  as  little  as  possible  individuals  and  communities 
dependent  upon  them  for  transportation  facilities."  The 
decision  of  the  commission  that  it  has  no  power  to  pro- 
tect the  carriers  against  the  excessive  and  unjust  compe- 
tition of  rivals,  is,  no  doubt,  a  proper  interpretation  of 
the  intent  of  the  framers  of  the  "  act  to  regulate  com- 
merce." But  its  action  must  frequently  be  harsh  and 
inequitable.  To  the  unprejudiced  student  of  the  trans- 
portation question  nothing  is  more  apparent  than  that 
uncontrolled  competition  between  rival  carriers  is  one 
of  the  great  underlying  causes  of  the  outrageous  personal, 
and  local  discriminations  in  railroad  charges  which  re- 
sulted in  the  enactment  of  the  Interstate  Commerce 
Law.  And  this  decision  demonstrates  the  great  inherent 
defect  of  that  measure,  which  seeks  to  cure  the  disease, 
but  forbids  the  forcible  removal  of  the  cause  of  the 
malady ;  which  contents  itself  with  the  application  of 
local  remedies  to  the  various  external  manifestations  of 
disorder,  but  fails  to  strike  at  the  organic  trouble  which 
vitiates  the  system.  When  unembarrassed  by  the  strin- 
gent statutory  requirement  in  respect  to  the  long  and 
short  haul,  and  guided  only  by  the  rule  of  "  reasonable 
and  just,"  operating  between  the  carrier  and  its  patrons, 
the  commission  has  been  able  to  put  its  judgments  upon 
a  basis  which  better  commends  them  to  the  unbiased 
investigator  of  these  questions. 

It  has  been  repeatedly  decided,  for  example,  that  equal 
rates  per  ton  per  mile,  for  long  and  for  short  distances  on 


UNJUST  AND    UNREASONABLE.  22/ 

the  same  road,  are  not  required  by  this  rule  ;  nor  is  it 
"reasonable  and  just,"  within  the  meaning  of  the  law, 
that  a  railroad  company  should  be  compelled  to  accept  as 
the  price  of  transportation  of  freight  originating  and  end- 
ing at  the  respective  termini  of  its  own  road,  the  share 
which  the  company  receives  of  a  joint  rate  on  the  same 
freight  transported  in  part  over  other  lines  as  well  as  its 
own. 

In  fact  it  is  not  always  "  unjust  or  unreasonable  "  to 
make  the  same  charge  for  an  appreciably  different  service 
in  respect  of  the  same  kind  and  quantity  of  freight, — as 
where  localities  unequally  distant  from  a  common  market 
are  given  the  same  rate  to  that  market  on  certain  com- 
modities. No  producer  or  shipper  has  an  exclusive  right 
to  supply  a  market,  and  the  interest  of  consumers,  and  of 
the  public  generally,  may  justify  carriers  in  enlarging  the 
field  from  which  the  demand  for  a  commodity  may  be 
supplied,  on  terms  of  equality  for  transportation.  But 
where  the  demand  is  limited,  the  extension  of  equal  rates 
to  more  distant  points  of  production  may  operate  to  pro- 
duce  an  undue  prejudice  or  disadvantage. 

In  all  cases  this  practice  must  be  restrained  within 
reasonable  limits ;  and  the  question  whether  an  unjust 
discrimination  is  occasioned  by  it  is  principally  one  of  fact, 
and  not  solely  of  law.' 

In  the  Danville  case  (i   Inter.  Com.   Rept.  703)  the 

'  See  case  of  "Group-Rates"  on  coal,  decided  by  commission,  March 
25,  1889. 


228  PUBLIC  REGULATION  OF  RAILWAYS. 

complaint  was  of  unjust  discrimination  against  Danville, 
in  the  charges  of  the  Richmond  &  Danville  R.  R.  Co., 
especially  in  favor  of  the  cities  of  Richmond  and  Lynch- 
burg. The  city  of  Danville  is  located  at  the  intersection 
of  the  main  line  of  the  R.  &  D.  R.  R.  with  its  Richmond 
branch.  The  N.  &  W.  R.R.  intersects  the  main  line  at 
Lynchburg,  65  miles  north  of  Danville,  and  the  C.  &  O. 
R.  R.  intersects  the  Richmond  branch  at  Richmond,  140 
miles  N.  E.  of  Danville.  Freights  were  consigned  from 
and  to  Danville,  to  and  from  the  west  and  northwest,  on 
through  bills  of  lading  over  the  Richmond  and  Danville 
road,  and  its  connections  at  Richmond  and  Lynchburg. 
And  it  was  proven  that  the  rate,  on  grain  for  instance, 
from  Chicago  to  Lynchburg,  a  distance  of  800  or  900 
miles,  was  22  cents  per  cwt.,  while  the  rate  to  Danville, 
only  65  miles  further  on,  was  34  cents  per  cwt. ;  and  the 
differences  on  flour,  meats,  and  other  provisions  were 
shown  to  be  in  like  proportion.  The  same  differences 
in  charges  were  made  from  Danville,  and  from  Richmond 
and  Lynchburg  respectively,  to  the  west  and  north- 
west ;  it  being  alleged,  for  example,  that  while  the  rate 
on  tobacco  from  Richmond  to  San  Francisco  was  from 
$1.50  to  $1.60  per  cwt.,  the  rate  from  Danville  via  Rich- 
mond to  San  Francisco,  on  through  bills  issued  by  the 
Richmond  &  Danville  R.  R.,  was  $3.  The  people  of 
Danville,  conceiving  the  existence  of  this  state  of  things 
to  be  an  outrageous  discrimination  against  them,  applied 
to  the  Interstate  Commerce  Commission  for  relief. 


UNFAIR  AND  EXCESSIVE   CHARGES.  229 

The  R.  &  D.  R.  R.  Co.,  however,  denied  all  responsibil- 
ity for  rates  between  Danville  and  points  not  on  its  own 
line,  except  for  so  much  of  the  transit  as  was  over  its 
own  line.  In  other  words  the  R.  &  D.  Co.,  while  issu- 
ing through  bills  by  arrangement  with  its  connecting 
roads,  for  the  accommodation  of  shippers,  did  not  join  with 
its  connections  in  making  rates.  It  charged  its  regular 
local  rates  for  so  much  of  the  carriage  as  was  over  its  own 
line,  and  did  not  pro-rate  charges  with  its  connections. 
And  it  maintained  that  these  local  rates  were  no  more 
than  reasonable  and  just,  though  they  were  out  of  all 
proportion  to  rates  charged  by  connecting  roads  on  the 
same  traf^c  to  Richmond  and  Lynchburg.  "  This,"  said 
the  commission  "  is  undoubtedly  a  great  hardship  to  the 
Danville  dealer,  who  must  not  only  pay  more  freight 
moneys  than  his  competitor  would  pay  on  a  like  con- 
signment, but  more  in  proportion  to  the  distance  the 
property  is  transported."  The  local  rates  are  so  much 
higher  than  the  rates  charged  on  the  through  lines,  that 
the  commission  declared  it  was  "  not  surprising  that  one 
who  compares  them  without  making  inquiry  into  the  cir- 
cumstances under  which  the  charges  respectively  are 
made,  is  inclined  to  pronounce  the  charges  of  defendant 
unfair  and  excessive."  "  The  Richmond  and  Lynch- 
burg dealer,  therefore,  acquires  his  stock  at  a  less  cost 
than  does  the  dealer  at  Danville,  and  is  able  to  undersell 
the  latter  almost  at  his  own  doors."  "  It  is  very  evident 
from   the   testimony   that   the   hardships   of   which  the 


230  PUBLIC  REGULATION   OF  RAILWAYS. 

witnesses  complain,  arise  chiefly  from  the  great  disparity 
between  the  local  and  through  rates." 

Two  assumptions,  the  commission  said,  were  made  by 
the  complainants.  "  The  first  is  that  defendant  may  be 
held  responsible  for  the  rates  made  on  connecting  lines, 
when  through  rates  are  named  to  consignors  over  such 
lines,  in  connection  with  its  own  ;  and  the  second  is  that 
rates  made  on  long  through  lines  may  form  a  just  basis  of 
comparison  with  defendant's  rates,  when  the  reasonableness 
of  the  latter  is  in  question."  That  defendant  "  is  responsible 
for  the  local  rates  is  unquestionable,  for  it  makes  those 
without  the  concurrence  or  interference  of  any  other  carrier 
— at  least  so  far  as  any  evidence  before  us  shows.  Perhaps 
it  is  not  unnatural  that  a  customer  of  the  road,  who  did 
not  inquire  into  the  facts,  should  suppose  the  defendant 
to  be  in  some  measure  responsible  for  the  through  rates 
also,  especially  if  he  found  that  defendant  issued  through 
bills  over  its  own  and  other  lines,  named  the  through 
rates  to  those  who  asked  for  them,  and  received  payment 
of  freight  moneys  for  the  whole  distance,  exactly  as  it 
would  if  the  whole  amount  were  its  own.  All  these 
things  may  happen  and  still  the  defendant  not  be  re- 
sponsible for  the  making  of  any  rate  off  its  own  line.  In 
most  respects  carriers  by  railroad  may  act  independently, 
provided  they  afford  to  each  other  all  proper  facilities  for 
the  interchange  of  trafific.  It  is  for  this  reason  that  rail- 
road controversies,  and  questions  of  rates  are  attended  by 
so  many  special  embarrassments;  they  cannot  be  adjusted 


LOCAL  AND  THROUGH  RATES.  23 1 

as  they  might  be  if  all  roads  belonged  to  one  system  and 
were  under  a  single  control.  If  that  were  the  case  the 
rates  might  be  so  arranged  as  to  prevent  many  of  the  in- 
equalities that  are  now  liable  to  operate  oppressively  to 
particular  localities.  When  intersecting  roads  are  sepa- 
rately controlled  and  owned,  it  may  well  happen  that  one 
which  is  of  the  very  highest  importance  to  the  community 
it  serves,  and  which  deals  with  them  fairly,  shall  neverthe- 
less be  powerless  to  prevent  the  rates  of  other  roads  giving 
to  some  of  its  towns  great  advantages  over  others,  unless 
it  consents  to  sacrifice  its  own  revenues  in  doing  so. 
Possibly  this  may  be  the  case  here.  .  .  .  The  differ- 
ence between  the  local  and  through  rates  is  certainly 
very  marked  and  striking,  and  it  results  unfavorably  to 
Danville  because  Richmond  and  Lynchburg,  which  are 
competing  towns  for  the  trade  along  the  line  of  defend- 
ant's road,  are  directly  upon  the  long  through  lines, 
while  Danville  is  not.  .  .  .  For  this  good  fortune 
the  defendant  is  not  to  be  thanked  by  the  favored  towns, 
or  blamed  by  the  other.  The  obligation  of  defendant 
is  to  make  rates  on  its  own  line,  which  are  fair, 
reasonable,  and  undiscriminating;  and  if  it  does  this  the 
responsibility,  if  there  is  any,  for  inequalities  as  between 
towns  on  its  line,  which  result  from  the  rates  made  by 
other  carriers,  must  rest  upon  those  who  make  them." 

Having  thus  shown  the  error  of  the  first  assumption 
made  by  the  complainants,  namely,  that  the  defendant 
road  was  responsible  for  rates  made  on  connecting  lines, 


232  PUBLIC  REGULATION  OF  RAILWAYS. 

the  commission  proceeded  to  examine  the  other  assump- 
tion, and  "  to  consider  whether  the  rates  charged  on  de- 
fendant's road  are  shown,  by  comparison  made  with  rates 
on  other  lines,  to  be  excessive  and  unreasonable."  "  In 
the  main  the  comparison  has  been  made  by  the  witnesses 
with  rates  on  through  lines  over  which  the  great  bulk  of 
the  traffic  in  grain,  flour,  dressed  and  canned  meats,  and 
provisions  passes  from  interior  points  to  the  seaboard. 
The  difference  between  the  rates  charged  for  transporta- 
tion over  those  lines  and  the  rates  made  by  the  defendant 
is  so  very  great  that  some  of  the  witnesses  in  testifying 
have  not  hesitated  to  declare  that  defendant's  charges 
were  thereby  proved  to  be  excessive.  The  logic  which 
brings  the  mind  to  this  conclusion  is  that  other  roads 
would  not  accept  the  low  rates  unless  they  were  profit- 
able, and  if  profitable  to  them,  rates  made  by  defendant, 
which  are  several  times  as  high,  must  necessarily  be  ex- 
orbitant. This  logic,  unfortunately,  though  at  first  blush 
it  seems  reasonable,  does  not  always  stand  the  test  of 
examination. 

"  It  is  a  well-known  fact  in  transportation,  that  the  cost 
of  carriage  depends  very  largely  upon  the  volume  of 
business,  the  cost  of  carrying  five  tons  being  very  much 
greater  in  proportion  than  the  cost  of  carrying  a  thousand 
tons  over  the  same  line.  That  carrier,  therefore,  can  give 
the  best  rates  whose  business  is  the  largest  and  most 
steady  ;  and  as  the  through  lines  between  the  Mississippi 
and  the  seaboard  are  the  best  situated  for  a  large  and 


COMPARISON  OF  RATES.  233 

steady  business,  they  can  undoubtedly,  as  a  general  fact, 
give  much  better  rates  than  the  roads  which  intersect 
them  ;  but  it  is  equally  well  known  that  the  proportionate 
cost  is  diminished  with  the  increase  of  distance,  and  as 
the  through  lines  carry  the  traf^c  mentioned  a  very  long 
distance  before  delivering  to  defendant  the  proportion 
which  is  to  go  over  its  road,  they  are,  for  this  additional 
reason,  enabled  to  make  exceptionally  low  rates.  These 
two  facts  are  quite  sufficient  to  render  any  comparison 
between  the  rates  charged  by  the  leading  through  lines 
and  those  made  by  the  defendant  of  little  or  no  value. 
The  circumstances  and  conditions  under  which  the  traffic 
is  carried  by  the  through  and  the  intersecting  roads, 
respectively,  are  too  great  and  too  diverse  to  admit  of 
useful  comparison.  .  .  .  The  comparison,  if  made  at 
all,  should  be  with  local  rates.  Even  then,  it  would  not 
be  very  conclusive,  without  an  inquiry  into  the  conditions 
and  circumstances  of  the  traffic  on  the  roads  whose  rates 
were  compared,  for  freights  on  some  roads,  for  a  diversity 
of  reasons  which  it  is  needless  to  undertake  to  specify 
here,  can  be  carried  much  more  cheaply  than  on  others. 
.  .  .  We  are  constrained  to  say,  therefore,  that  the 
rates  charged  by  the  defendant,  and  which  the  petitioners 
complain  of  as  excessive,  are  not  shown  by  the  proofs  to 
be  so." 

In  the  case  just  commented  on,  it  was  decided  that  the 
railroad  company  might  impose  its  usual  local  charges 
between  Danville  and  Lynchburg  on  freight  consigned  on 


234  PUBLIC  REGULATION  OF  RAILWAYS. 

"  through  bills "  from  Danville  via  Lynchburg  to  the 
West.  The  power  of  the  commission  to  compel  connect- 
ing railway  companies  to  unite  in  making  joint  through 
rates,  on  a  pro-rating  basis,  was  not  directly  involved. 
Subsequently,  in  the  case  of  Bridge  Co.  vs.  Railroad  Co. 
(2  Int.  Com.  Repts.),  the  commission,  on  complaint  of  the 
bridge  company  (holding  it  under  the  facts  of  the  case  to 
be  a  common  carrier  subject  to  the  act),  ordered  the  rail- 
road company  to  "  afford  all  reasonable,  proper,  and  equal 
facilities  for  the  interchange  of  traffic  between  the  re- 
spective lines  of  the  parties,  and  for  receiving,  forwarding, 
and  delivering  of  property  to  and  from  their  respective 
lines  and  those  connecting  therewith."  This  order  did 
not  undertake  to  fix  the  terms  or  the  details  of  inter- 
change between  the  parties,  and  the  question  of  "  through 
rates  "  was  not  passed  upon.  In  a  suit  brought  by  the 
bridge  company  in  the  federal  court  to  compel  the  rail- 
road company  to  obey  the  order  of  the  commission,  the 
court  reversed  the  commission's  decision.  Very  recently 
the  commission  has  held  that,  although  Congress  probably 
intended  that  connecting  roads  should  be  compellable  to 
make  through  routes  and  give  through  rates  to  the  public, 
yet  existing  legislation  does  not  clothe  the  commission 
with  authority  to  decide  upon  and  enforce  the  details 
necessary  to  a  joint  "  through  business,"  such  as  the 
establishment  and  apportionment  of  a  rate.  Further  legis- 
lation to  this  end  was  therefore  recommended  to  Congress. 
In  the  Danville  case  it  is  to  be  noted  that  the  Rich- 


LOCAL   CHARGES.  235 

mond  and  Danville  road  had  no  joint-rate  agreement  with 
its  connections.  Where  such  agreements  exist,  the  con- 
necting roads  should,  it  seems,  as  to  the  joint  traffic,  be 
considered  as  if  but  a  single  road,  and  the  charges  over 
one  part  of  the  route  may  properly  be  taken  as  a  criterion 
of  charges  over  other  parts,  or  over  the  whole.  In  the 
case  of  Farrar  vs.  The  East  Tennessee  &  Georgia,  and 
the  Norfolk  &  Western  Railroad  companies  (i  Inter- 
state Com.  Repts.,  p.  764),  it  appeared  that  the  two 
companies  made  joint  rates  on  lumber,  from  Dalton, 
Georgia,  to  points  on  the  line  of  the  last-named  road  in 
Virginia,  though  the  basis  of  the  division  of  rates  is  not 
given  in  the  opinion  in  the  case. 

The  local  charges  on  lumber  of  the  E.  T.,  V,.,  &  G.  Com- 
pany, over  that  part  of  the  route  from  Dalton  to  Knox- 
ville,  a  distance  of  1 10  miles,  were  7  cts.  per  cwt.,  and  to 
Bristol,  241  miles,  1 1  cts.  per  cwt.,  Bristol  being  the 
point  of  connection  between  the  two  roads.  The  joint 
rates  from  Dalton  to  Roanoke,  Va.,  a  distance  of  391 
miles,  were  22  cts.  per  cwt.,  and  to  Lynchburg,  445 
miles,  22  cts.  per  cwt.  The  charges,  therefore,  were 
at  the  rate  of  1.27  cts.  per  ton  per  mile  from  Dalton  to 
Knoxville,  of  .917  cts.  per  ton  mile  to  Bristol,  of  1.12  cts. 
per  ton  mile  to  Roanoke,  and  of  .988  cts.  per  ton  mile  to 
Lynchburg. 

Or,  treating  the  Norfolk  &  Western  road  indepen- 
dently, the  charges  from  Bristol  to  Roanoke  were  at  the 
rate  of  1.47  cts,  per  ton  mile,  and  from  Bristol  to  Lynchburg 


236  PUBLIC  REGULATION  OF  RAILWAYS. 

at  the  rate  of  1.08  cts.  per  ton  mile.  The  shipments  were 
continuous,  there  being  no  break  of  bulk  or  rehandling  of 
the  lumber  at  Bristol.  Complaint  of  the  charges  above 
referred  to,  being  made  to  the  Interstate  Commerce 
Commission,  it  was  decided  that  the  rates  from  Dalton  to 
Knoxville  and  Bristol  were  not  unreasonable.  But  con- 
cerning the  joint  rates  to  Roanoke  and  Lynchburg  it  was 
said :  "  It  is  a  very  familiar  rule  in  the  transportation  of 
freight  by  railroads,  and  has  become  axiomatic,  that  while 
the  aggregate  charge  is  continually  increasing,  the  further 
the  freight  is  carried,  yet  the  rate  per  ton  per  mile  is  con- 
stantly growing  less  all  the  time.  In  consequence  of  the 
existence  of  this  rule,  the  aggregate  charge  continues  to 
be  less  in  proportion  every  hundred  miles  after  the  first, 
arising  out  of  the  character  and  nature  of  the  service  per- 
formed, and  the  cost  of  the  service ;  and  thus  it  is  that 
staple  commodities  and  merchandise  are  enabled  to  bear 
the  charges  of  transportation,  from  and  to  the  most  dis- 
tant portions  of  our  country.  Examples  showing  the 
universality  of  this  rule  may  be  seen  in  the  tariffs  of  the 
railroad  companies  generally  in  the  United  States,  where 
their  length  is  suf^cient  to  admit  of  its  application. 
In  the  rates  charged  between  Dalton,  Knoxville,  John- 
son City,  and  Bristol,  this  rule  is  observed  ;  but  be- 
tween Bristol  and  Roanoke  and  Lynchburg  in  this  con- 
tinuous haul  it  is  not.  The  act  to  regulate  commerce,  so 
far  from  throwing  hampering  restrictions  or  obstacles  in 
the  way  of  the  operation  of  this  salutary  rule,  gives  it  all 


FIXING  OF  NATES.  237 

the  benefit  and  aid  of  its  sanction  and  safeguards,  by  pro- 
viding that  the  carrier  shall  be  entitled  to  recover  a  reason- 
able compensation  for  the  service  performed  upon  open 
published  rates  against  which  no  competitor  can  take 
advantage  by  allowing  shippers  secret  rebates  and  draw- 
backs in  order  to  get  the  business.  .  .  .  The  conclu- 
sion that  we  have  reached  upon  the  evidence  in  this  case 
is  that  the  joint  rates  of  22  cts,  charged  by  the  East 
Tennessee,  Virginia,  &  Georgia,  and  the  Norfolk  & 
Western  Railroad  companies,  upon  car-load  lots  of  lum- 
ber from  Dalton,  Georgia,  to  Roanoake  and  Lynchburg, 
Virginia,  are  each  unreasonable,  and  that  17  cts.  per  100 
pounds  in  car-load  lots  of  such  lumber  from  Dalton  to 
Roanoke,  and  18  cts.  per  100  pounds  on  car-load  lots 
of  such  lumber  from  Dalton  to  Lynchburg,  would  be 
reasonable." 

An  order  was  accordingly  entered  by  the  commission 
that  the  rates  should  be  fixed  at  those  figures. 

In  the  case  of  Evans  vs.  Oregon  Railway  &  Nav.  Co. 
(i  Interstate  Com.  Repts.,  p.  641),  where  the  railroad  com- 
pany was  required  to  reduce  its  rates  on  wheat  between  cer- 
tain points,  the  elements  entering  into  the  general  question 
of  the  reasonableness  of  rates  were  quite  fully  considered 
by  the  commission.  And  it  was  said  that  "  a  variety  of 
practical  considerations  must  enter  into  the  making  of 
freight  rates  by  a  railroad  company,  and  determine  to  a 
great  extent,  in  every  instance,  the  question  whether  such 
rates  are  reasonable  or  not.      Railroad  companies  can  not 


238  PUBLIC  REGULATION-  OF  RAILWAYS. 

be  required  to  make  freight  rates  upon  mere  theories  or 
conjectures.  They  have  to  deal  with  business  as  they 
find  it." 

The  practice  of  "  grouping  rates,"  that  is,  making  the 
same  charge  for  transportation  of  similar  commodities 
from  or  to  different  and  sometimes  widely  separated 
stations  on  the  same  line,  has  recently  engaged  the 
attention  of  the  commission.  In  the  case  of  the  rates  on 
milk  coming  from  the  country  districts  into  New  York 
City  (to  be  reported  in  2d  Interstate  Com.  Repts.),  it 
appeared  that  the  same  charge  was  imposed  for  carrying 
milk  21  miles  as  for  183  miles,  and  all  intermediate 
distances  on  the  same  road. 

This  was  claimed  to  confer  an  undue  advantage  on  the 
more  remote  stations  and  shippers,  and  to  impose  an  un- 
due disadvantage  on  those  located  nearer  the  city.  And 
it  was  argued  that :  "  Undue  advantage  to  the  one,  and 
undue  prejudice  to  the  other,  is  just  as  great  when  the 
difference  is  made  in  the  increased  amount  of  the  service 
rendered  for  the  same  price,  as  it  is  when  the  difference  is 
made  in  the  increased  price  charged  for  the  same  amount 
of  service."  The  commission,  after  referring  to  numerous 
instances  where  the  practice  of  grouping  prevails,  with- 
out, however  giving  its  sanction  to  the  practice,  said  : 
"  The  principle  of  grouping  is  not  novel.  The  propriety 
of  its  application  is  properly  open  to  challenge  in  every 
case,  and  every  case  must  be  justified  upon  its  own 
facts  and   peculiar   circumstances."      In  the  case  under' 


THE  MILK  PRODUCERS.  ^39 

discussion  the  application  of  the  grouping  principle 
was  sanctioned, — chiefly,  it  appears,  upon  two  grounds: 
First,  "  that  the  difference  in  expense  to  the  carrier  of  the 
milk  traffic  "  (which  was  shown  to  be  of  an  exceptional 
character)  from  the  different  stations  "  is  so  trifling  that 
the  argument  against  grouping  from  this  source  is  not  at 
all  controlling,  and  is  in  fact  of  very  little  weight "  ; 
second,  that  the  petitioners  "  utterly  failed  to  show  any 
way  in  which  they  are  in  fact  injured  by  the  grouping  of 
the  rates,  or  by  the  fact  that  more  distant  points  have  the 
same  rates." 

The  milk  producers  near  the  city,  it  was  said,  do  not 
receive  any  less  for  their  milk  because  an  opportunity  is 
given  to  those  more  remote  to  participate  in  the  industry 
upon  the  same  terms.  ''  Nor  does  it  appear  that  there  is 
any  glut  in  the  market  created  by  the  extension  of  the 
identical  milk  rates,  or  that  there  is  any  difficulty  in 
disposing  of  the  entire  .  .  .  product."  The  commis- 
sion further  remarked  that :  "  In  considering  a  question 
of  this  kind,  the  interests  of  the  public  as  a  whole  should 
be  kept  in  view.  It  will  not  do  to  look  solely  to  the 
pecuniary  advantage  of  the  producers.  The  great  body 
of  consumers  are  equally  entitled  to  be  considered, 
although  their  pecuniary  interests  are  individually  less, 
because  their  number  is  so  much  the  greater.  .  .  . 
The  system  of  making  a  uniform  freight  rate  upon  all 
milk  transported  upon  the  same  road  to  a  common  mar- 
ket, is  one  of  long  standing.     .     .     .     It  has  served  the 


240  PUBLIC  REGULATION  OF    RAILWAYS. 

public  well.  It  tends  to  promote  consumption,  and  to  stimu- 
late production.^ ' 

The  statements  contained  in  the  language  above  itali- 
cized, if  supported  by  the  facts  of  the  case,  as  they 
doubtless  are,  suggest  the  real  object  of  the  carriers  in 
adopting  the  grouping  principle,  and  also  furnish  the 
justification  of  the  practice.  It  increases  the  volume  of 
traffic,  and  the  amount  of  net  earnings  to  the  companies, 
and  it  results  in  the  general  public  benefit. 

In  the  case  of  Raymond  vs.  R.  R.  Co.  (i  Interstate 
Com.  Repts.,  p.  627),  a  railroad  company  having  a  branch 
line,  upon  which  are  located  towns  whose  situation  fairly 
entitles  them  to  compete  for  business  with  towns  on  the 
main  line,  but  of  which  business  they  had  been  deprived 
by  reason  of  the  higher  transportation  charges  imposed 
upon  them,  was  compelled  to  readjust  its  rates  in  the 
interest  of  the  towns  on  the  branch  line.  And  this,  in 
spite  of  the  fact  that  the  towns  on  the  main  line  were 
shown  to  be  within  the  competitive  influence  of  an  inde- 
pendent road,  which  necessitated  lower  charges  than 
might  otherwise  have  been  reasonable. 

The  question  of  export  rates — that  is,  the  allowance  to 
a  port  of  shipment  of  a  rebate  from  the  regular  rate,  on 
commodities  actually  exported — has  given  considerable 
trouble,  and  has  not  yet  been  squarely  decided.  The 
commission  has  held  that  the  existence  of  such  a  rebate 
system  on  exports  from  Boston,  allowed  to  put  that  city 
on  a  footing  with  New  York  in  the  foreign  trade,  does  not 


PREFERENCES  BETWEEN   SHIPPERS.  24 1 

prove  that  Boston  is  entitled  to  the  New  York  rate  on 
commodities  not  exported.  But  the  question  of  the 
legality  of  the  rebate  was  entirely  excluded  from  the 
consideration  of  the  case,  and  any  expression  of  opinion 
upon  it  carefully  abstained  from.  The  allowance  of  a 
lower  regular  rate  to  Ncw^  York  than  to  Boston  was  sanc- 
tioned on  the  ground  of  the  shorter  distance  from  the 
west  to  the  former  city,  the  greater  volume  of  traffic,  and 
the  greater  competition  between  the  traffic  routes  termi- 
nating at  New  York.  (Boston  Chamber  of  Commerce  vs. 
R.  R.  Cos.  1st  Interstate  Com.  Repts.,  p.  754.) 

Preferences  between  shippers  have  been  firmly  repressed 
by  the  commission  when  brought  to  its  attention,  and 
some  of  the  devices  for  effecting  discriminations  have 
been  exposed  and  condemned.  An  instructive  case  is 
that  of  Rice  vs.  Louisville  &  Nashville  R.  R.  Co.  (i  Inter- 
state Com.  Repts.,  p.  722),  That  company  published  a 
tariff  sheet  in  which  rates  on  kerosene  oil  shipped  in  tank 
cars,  and  rates  on  the  same  product  per  car-load  in  bar- 
rels, were  both  given.  But  the  tariff  sheet  failed  to  dis- 
close the  fact  that  the  company  itself  furnished  no  tank 
cars.  Much  higher  rates  were  charged  for  hauling 
barrelled  oil  by  the  car-load  in  the  company's  own  cars, 
than  were  charged  for  the  same  estimated  weights  in 
tank  cars  belonging  to  shippers ;  and,  moreover,  the 
weight  in  the  tank  cars  was  estimated  merely,  and  was 
very  frequently  less  than  the  actual  weight. 

The  shipper  furnishing  the  tank  cars  was  paid  by  the 


242  PUBLIC  REGULATION  OF  RAILWAYS. 

company  for  their  use, — the  company  having  also  the 
privilege  of  using  them  for  return  freight  when  practica- 
ble. George  Rice,  the  complainant  in  the  case,  was  a 
large  producer  and  shipper  of  kerosene  and  kindred  oils, 
but  having  no  tank  cars  was  obliged  to  avail  himself  of 
the  ordinary  cars  furnished  by  the  company,  and  shipped 
his  oil,  barrelled,  in  those  cars.  Rice's  principal  competi- 
tor in  business  was  the  Standard  Oil  Company — long 
dominant  in  the  oil  trade  and  in  the  favor  of  the  car- 
riers. This  company  shipped  largely  in  tank  cars  (its 
own  property),  and  appears  to  have  been  the  principal  if 
not  the  only  shipper  using  that  method  of  transportation. 
Rice  charged  that  the  difference  in  rates,  between  tank 
shipments  and  barrel  shipments,  was  made  by  the  rail- 
road company  for  the  express  purpose  of  giving  the 
Standard  Oil  Company  the  advantage  over  all  other 
shippers  of  kerosene  oil.  It  certainly  had  that  effect, 
and  Rice  therefore  complained  :  ist.  That  the  rates  on 
his  barrelled  oil  were  unjust  and  unreasonably  high  in 
themselves ;  2d.  That  the  rates  per  tank  constituted  a 
less  charge  to  the  Standard  Oil  Company  than  to  him, 
for  a  like  and  contemporaneous  service,  under  substan- 
tially similar  circumstances  and  conditions;  and  3d.  That 
the  difference  in  rates  per  car-load  in  barrels,  and  per 
tank,  subjected  him  to  undue  and  unreasonable  prejudice 
and  disadvantage,  and  gave  the  Standard  Oil  Company 
undue  and  unreasonable  preference  and  advantage  oyer 
him, 


I 


REASONABLENESS  OF  RATES.  243 

The  defendant,  railroad  company,  insisted  that  the  rate 
for  each  mode  of  transporting  oil  was  "  reasonable,  in  and 
of  itself  "  ;  declared  that  the  circumstances  and  condi- 
tions of  the  two  modes  of  transportation  were  entirely- 
different  ;  and  sought  to  justify  the  lesser  charge  on  tank 
shipments,  by  the  fact :  ist.  That  the  shipper  himself 
furnished  the  rolling  stock — saving  the  company  that  ex- 
pense ;  2d.  That  (as  asserted)  the  risk  to  the  company  by 
such  shipments  was  less  than  by  barrel  shipments  ;  and 
3d.  That  (as  asserted)  the  probability  of  procuring  return 
loads  in  tank  cars  was  greater.  And  while  admitting  the 
advantage  to  the  shipper  of  the  transportation  in  tank 
cars,  it  was  also  insisted  that  that  mode  of  carriage  was 
open  on  the  same  terms  to  all  who  were  willing  or  able  to 
avail  themselves  of  it. 

Hence  it  was  argued  that  no  person  was  charged  a 
greater  or  less  sum  than  another  for  the  same  service ; 
and  that  no  one  was  subjected  to  any  undue  prejudice  or 
disadvantage,  or  given  any  undue  preference  or  advan- 
tage, where  the  option  was  given  to  all  alike  to  select 
either  the  cheaper  or  the  more  expensive  mode  of  ship- 
ment. In  reply  to  the  assertion  that  the  rate  for  each 
mode  of  transporting  oil  was  "  reasonable  in  and  of 
itself,"  Chairman  Cooley  explained  how  the  question  of 
the  reasonableness  of  a  rate  was  usually  a  relative  one, 
involving  a  comparison  with  the  rates  charged  on  other 
commodities,  and  especially  on  commodities  of  like  kind 
and  value  which  supply  the  same  demand.     Therefore  in 


244  PUBLIC  REGULATION  OF  RAILWAYS. 

determining  the  reasonableness  of  the  charges  on  barrelled 
oil,  the  commission  deemed  itself  "absolutely  required  to 
keep  in  view  the  disparity  which  is  shown  to  exist  be- 
tween them,  and  the  rates  which  the  same  companies 
charge  upon  the  same  article  of  merchandise  when  they 
receive  and  transport  it  in  cars  furnished  by  the  shippers 
themselves.  That  disparity  has  an  inevitable  and  very 
important  bearing  upon  the  question  of  reasonableness  ; 
prima  facie  it  is  unjust  because  it  is  oppressive,  and  the 
defendants  are  fairly  called  upon  to  exhibit  good  reasons 
for  it."  Having  shown  the  fallacy  of  the  idea  of  a  rate 
being  "  reasonable  in  and  of  itself,"  the  commission  pro- 
ceeded to  investigate  the  reasons  advanced  by  the  carrier 
for  giving  the  lower  rates  to  tank  shipments.  In  answer 
to  the  argument  that  the  shipper  furnished  the  tank  cars, 
it  was  said  that  it  was  "  properly  the  business  of  the  rail- 
road company  to  supply  to  their  customers  suitable  vehi- 
cles of  transportation  (R.  R.  Co.  vs.  Pratt,  22  Wall,  123- 
133)  and  then  to  offer  their  use  to  everybody  impartially." 
And  this  was  declared  to  be  "  a  very  forcible  reason  why 
the  carrier  should  see  to  it  that  its  patrons,  who  are  forced 
to  make  use  of  such  facilities  as  it  provides  for  them,  shall 
not  find  its  own  want  of  rolling  stock  made  a  ground  of 
discrimination  against  them."  And  it  was  held  that 
"  the  fact  that  one  consignor  furnishes  a  car  for  hire  to 
the  railroad  company  for  the  transportation  of  his  oil,  is 
no  ground  whatever  for  a  discrimination  in  rates  in  his 
favor,  as  against  another  consignor  who  must  ship  in  the 


TANK  SHIPMENTS.  245 

cars  the  carrier  supplies."  In  respect  to  the  second  and 
third  reasons  assigned  for  favoring  tank  shipments,  namely, 
the  lesser  risk  and  the  greater  probability  of  return  loads, 
the  commission  was  of  opinion  that  the  evidence  did  not 
sustain  either  claim.  Reference  was  made  to  the  custom 
of  making  the  rate  on  tank  cars  regardless  of  weight  or 
quantity,  as  an  additional  proof  of  discrimination  ;  espe- 
cially when  the  public  was  led  to.  suppose  that  when  the 
contents  of  the  car  exceeded  a  certain  quantity  or  weight 
an  extra  charge  was  made,  when  in  fact  this  was  never 
done.  Accordingly  an  order  was  entered  requiring  the 
companies  to  make  the  same  car-load  ra.te  />er  hundred  on 
kerosene  carried  in  tank  cars,  as  on  the  same  product 
transported  in  barrels — including  in  the  latter  case  the 
weight  of  barrels  as  well  as  of  their  contents. 

In  the  case  of  Providence  Coal  Co.  vs.  P.  &  W.  R.  R. 
Co.  (i  Interstate  Com.  Repts.,  363),  the  commission  de- 
cided against  a  rebate  or  discount  in  favor  of  a  large 
shipper,  though  the  same  discount  was  offered  by  the 
railroad  company  to  all  dealers  who  would  furnish  the 
same  quantity  of  freight. 

"  A  distinction  in  rates,"  says  Chairman  Cooley,  "  as 
between  car-loads  and  smaller  quantities,  is  readily  under- 
stood and  appreciated.  .  .  .  But  when  a  question  of 
rebates  or  discounts  is  under  consideration,  it  might  be 
misleading  to  consider  them  in  the  light  of  the  principles 
which  merchants  act  upon  in  the  case  of  wholesale  and 
retail  transactions.     There  is  a  very  manifest  difficulty  in 


246  PUBLIC  REGULATION  OF  RAILWAYS. 

applying  those  principles  to  the  conveniences  which  com- 
mon carriers  furnish  to  the  public,  a  difficulty  which 
springs  from  the  nature  of  the  duty  which  such  carriers 
owe  to  the  public.  That  duty  is  one  of  entire  impar- 
tiality of  service.  .  .  .  The  carrier  cannot  regard  its 
own  interest  exclusively.  If  it  could  it  might,  by  methods 
easily  available,  drive  all  small  dealers  off  its  line,  and 
centre  the  whole  trade  in  a  few  hands.  The  state  of 
things  which  would  result  might  be  altogether  for  its 
interest  and  convenience  .  .  .  but  the  wrong  would  be 
flagrant." 

The  case  of  Pyle  vs.  R.  R.  Co.  (i  Interstate  Com. 
Repts.,  p.  'j(y']')  involved  a  complaint  of  unjust  discrim- 
ination against  ^^ pearlme,''  in  favor  of  common  soap,  in 
the  classification  of  the  Southern  Railway  &  Steamship 
Association.  Pearline  was  placed  in  fourth  class,  and  the 
rate  per  hundred  pounds  from  New  York  to  Atlanta  was 
seventy-nine  cents,  while  common  soap  was  placed  in 
sixth  class,  where  the  rate  was  forty-nine  cents  per  hun- 
dred ;  and  to  Atlanta  there  was  a  special  rate  on  common 
soap  of  thirty-three  cents  per  hundred.  The  transporta- 
tion was  from  New  York  to  Norfolk  by  water,  and  thence 
to  Atlanta  by  rail,  in  part  over  the  road  complained  of.  It 
appeared  that  common  soap  and  pearline  were  put  up 
and  transported  in  packages  of  similar  size,  shape,  and 
weight,  and  that  there  was  no  practical  difference  in  the 
cost  of  service  in  transporting  either  article.  It  also 
appeared  that  common  soap  and  pearline  are  used  for  the 


JUSTIFICATION   OF  CLASSIFICATION.  24/ 

same  general  purposes,  and  are,  therefore,  competitive  in 
commerce  ;  and  in  all  the  classifications  except  that  of  the 
S.  R.  &  S.  S.  Association  they  are  placed  in  the  same 
class. 

The  railroad  company  sought  to  justify  the  difference 
in  classification  on  the  ground  that  the  market  value  of 
pearline  was  about  double  that  of  common  soap,  and  that 
(as  asserted)  the  risk  of  loss  or  injury  in  transportation  is 
much  greater  in  case  of  the  former  than  the  latter.  The 
commission  held  that  these  reasons  justified  a  difference 
in  the  classification,  but  not  so  great  as  that  which  had 
been  established  ;  and  it  was  ordered  that  "  while  common 
soap  is  in  its  sixth  class,  pearline  must  be  placed  in  its 
fifth  class,"  which  would  impose  a  rate  of  sixty  cents  per 
hundred  on  the  latter  article  from  New  York  to  Atlanta. 
The  commission,  in  coming  to  its  conclusions,  relied 
largely  upon  the  difference  in  value  of  the  commodities 
as  justifying  a  difference  in  classification,  and  also  laid 
great  weight  upon  the  alleged  difference  in  risk.  And  a 
greater  difference  in  the  classification  was  allowed,  by 
reason  of  the  transportation  being  partly  by  water,  than 
would  have  been  had  it  been  "all  rail,"  it  being  supposed 
that  the  relative  risk  of  damage  was  greater  by  water  than 
by  rail.  The  competitive  character  of  the  two  articles, 
on  the  other  hand,  had  weight  with  the  commission  to 
make  the  difference  allowed  less  than  might  have  been 
justified  in  the  absence  of  that  consideration.  It  would 
seem  probable  that  undue  weight  was  given  in  this  case 


248  PUBLIC  REGULATION  OF  RAILWAYS. 

to  the  argument  of  relative  risk  in  the  carriage  of  the  two 
commodities,  as  the  evidence  failed  to  show  that  any 
damage  in  transportation  had  ever  occurred,  or  would  be 
likely  to  occur,  to  pearline,  beyond  what  common  soap 
might  also  sustain. 

The  difference  in  the  value  of  the  article  undoubtedly 
affords  a  sound  basis  for  difference  in  classification. 

In  the  case  of  Reynolds  vs.  R.  R.  Co.  (vol.  i  Interstate 
Com.  Repts.,  p.  685),  it  appeared  that  the  company  had 
placed  railroad  ties  in  fifth  class,  and  lumber  and  other 
coarse  products  of  the  forest  in  sixth  class,  the  rate 
on  the  fifth  being  considerably  higher  than  on  the  sixth 
class  of  traffic. 

But  besides  the  discrimination  thus  made  in  the  regular 
tariff,  against  cross-ties  as  compared  with  lumber,  the 
latter  was  in  practice  constantly  given  a  special  rate, 
about  one  half  that  on  ties.  Complaint  of  this  discrimi- 
nation against  traffic  in  cross-ties  being  made  to  the  com- 
mission, that  tribunal  found,  as  a  matter  of  fact,  that  there 
was  no  difference  in  cost  of  service,  in  risk,  or  in  the  value 
of  the  commodity  to  justify  classifying  cross-ties  higher 
than  lumber ;  and  it  further  found  that  there  was  no 
competition  with  other  roads  in  the  lumber  traffic  to 
justify  the  special  low  rate  charged  on  lumber  as  compared 
with  the  rate  on  ties.  The  sole  motive  of  the  discrimina- 
tion was  plainly  to  prevent  the  ties  going  off  the  line  of 
the  road,  and  to  enable  the  company  to  purchase  them  at 
its  own  figures.     The  commission  in  terms  of  very  just 


DRESSED-MEAT   TRAFFIC.  249 

censure  against  the  injustice  of  this  discrimination  for- 
bade its  further  continuance, — concluding  the  opinion 
in  the  case  as  follows :  "  Rates  established  by  a  common 
carrier  under  the  influence  of  a  desire  to  keep  upon  its 
line  a  material  for  which  the  road  itself  has  use,  or  to  keep 
the  price  thereof  low  for  its  own  advantage,  cannot  be 
justified  either  in  morals  or  in  law.  Every  party  who 
produces  such  a  material  is  entitled  to  sell  it  when  he 
wishes  in  the  best  available  market,  and  the  common 
carrier  has  no  right  to  prevent  his  doing  so  by  dispro- 
portionate or  unreasonable  rates.  This  the  defendants 
in  the    present    case    have    been    attempting  to  do." 

The  most  interesting  and  important  question  involv- 
ing the  classification  of  freights  yet  presented  to  the 
commission  has  not  been  decided,  the  complaints  in- 
volving it  having  been  withdrawn.  It  arose  in  the 
complaints  preferred  by  the  producers  and  shippers  of 
dressed  meat,  of  excessive  charges  imposed  on  the  trans- 
portation of  their  product  as  compared  with  the  rates  for 
the  transportation  of  live  stock.  Of  course  the  expense 
and  risk  to  the  carriers  of  handling  the  dressed-meat 
traffic  is  considerably  greater  than  that  incident  to  the 
live-stock  business.  It  seems  to  be  generally  conceded, 
however,  that  the  difference  in  charge  was  greater  than 
could  be  justified  by  the  mere  difference  in  cost  and  risk, 
and  on  the  general  ground  of  charging  according  to 
"what  the  traffic  will  bear,"  a  further  difference  in  rates 
may  certainly  be  justified. 


250  PUBLIC  REGULATION  OF  RAILWAYS. 

But  there  seems  to  be  a  specific  and  important  public 
reason  why  the  transportation  charges  on  dressed  meat 
should  considerably  exceed  those  on  live  stock ;  and  this 
is  that  the  live-stock  business,  and  the  traffic  in  beef 
cattle,  etc.,  between  the  butchers  of  the  cities  and  the 
small  graziers  throughout  the  country  may  not  be  de- 
stroyed, as  it  probably  would  be  under  any  thing  like 
equal  rates. 

This  subject  has  already  been  adverted  to.  Dressed 
meat  and  live  stock  are  competitive  commodities  in  com- 
merce, and  the  relative  rates  on  each  should  be  so 
adjusted  and  maintained  as  to  promote  and  not  destroy 
the  competition.  This  principle  was  recognized  in  the 
case  (heretofore  commented  on)  involving  the  relative 
rates  on  pearline  and  soap.  In  that  instance  the  rates  on 
the  two  commodities  were,  in  the  interest  of  competition, 
more  nearly  approximated  to  each  other.  But  the  same 
principle  requires  the  maintenance  of  a  proper  disparity 
in  rates  where  necessary  to  preserve  the  competition  of 
products.  It  may  be  safely  anticipated  that  the  commis- 
sion, if  called  on  to  decide  this  question — involving  as  it 
does  results  of  such  vital  importance, — will  be  guided  by 
those  considerations  which  point  to  the  security  and  pro- 
tection of  the  public  as  its  first  and  highest  duty. 

Senator  Cullom,  to  whose  untiring  zeal  and  conservative 
temperament  the  enactment  of  the  Interstate  Commerce 
Law  in  its  present  shape  was  largely  due,  in  a  recent  speech 
in  the  Senate  reviewed  the  results  of  the  first  year's  op- 


UNIFORMITY  OF  CLASSIFICATION:  2$ I 

eration  of  the  act.  From  this  it  appears  that  one  of  the 
immediate  effects  of  the  law  was  the  abandonment  of  all 
pools  upon  interstate  traffic.  The  associations  through 
which  pooling  was  carried  on  have,  however,  been  reor- 
ganized, and  continued  to  carry  out  the  other  objects  for 
which  they  were  formed,  such  as  the  making  of  regula- 
tions for  the  interchange  of  traffic,  the  arrangement  of 
classifications,  the  making  of  joint  rates,  and  numerous 
other  matters  of  detail.  It  is  generally  believed  that  the 
division  of  business  and  the  diversion  of  freights,  which 
were  among  the  most  objectionable  features  of  the  pool- 
ing system,  have  ceased  ;  but  the  existing  traffic  associa- 
tions still  manage  to  control  the  rates  on  certain  classes 
of  important  traffic  as  effectively  and  as  arbitrarily  as 
they  did  in  the  palmiest  days  of  the  old  pooling  system. 
Another  noticeable  effect  of  the  act  was  the  immediate 
termination  of  a  vast  number  of  special  freight  contracts 
and  agreements,  under  which  rebates  and  drawbacks  had 
been  paid  to  favored  shippers.  Greater  uniformity  of 
classification  has  also  resulted.  The  provisions  requiring 
publication  of  rates,  and  forbidding  departure  from  the 
same  as  published,  in  connection  with  the  long-  and 
short-haul  rule,  have  rendered  the  rate  wars  which  have 
occurred  since  the  passage  of  the  act  much  more  disastrous 
in  their  effect  upon  the  revenues  of  the  carriers  than  those 
which  previously  took  place.  Formerly  such  wars  could 
be  carried  on,  in  respect  to  long-distance  traffic  between 
competitive  points,  without  any  reduction  whatever  at 


252  PUBLIC  REGULATION   OF  RAILWAYS. 

local  stations  on  either  road  engaged  in  the  cutting  of 
rates. 

Those  which  have  since  been  indulged  in,  except  the 
one  wageiby  the  trans-continental  lines  and  the  Canadian 
Pacific,  have  resulted  in  reductions  at  intermediate  sta- 
tions, and  have  affected  very  seriously  the  revenues  of 
the  competing  roads  from  their  own  local  traffic.  In  a 
number  of  cases  (some  of  which  have  been  reviewed) 
where  questions  of  the  reasonableness  of  rates  or  of  dis- 
criminations have  been  brought  before  the  commission,  it 
has  ordered  a  reduction  of  the  rates,  or  the  abandonment 
of  the  discriminative  practice.  And  the  decisions  in  these 
cases  have  had  an  influence  far  beyond  the  questions  and 
parties  immediately  involved.  They  have  established 
principles,  have  been  accepted  as  precedents,  and  have 
affected  rates  throughout  the  country.  The  tendency  of 
railroad  rates  in  general,  since  the  passage  of  the  law,  has 
been  downward,  and  though  it  cannot  be  claimed  that  this 
has  been  always  or  entirely  due  to  the  Interstate  Commerce 
Act,  that  has  undoubtedly  been  potential  in  securing  a 
reduction  of  rates  in  many  instances.  One  class  of  re- 
ductions must  be  directly  attributed  to  the  operation  of 
the  law.  These  are  where  under  the  former  practice 
more  was  charged  for  a  shorter  than  a  longer  distance 
over  the  same  line  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance.  When  the 
law  took  effect  a  very  large  majority  of  the  carriers  of  the 
country  entirely  revolutionized  their  practice  in  this  re- 


COMPETITION    WITH    WATER  ROUTES.  253 

spect,  and  framed  their  tariffs  in  accordance  with  the 
prohibition  against  a  greater  charge  for  the  shorter  than 
for  the  longer  haul.  In  doing  this  the  local  rates  were 
generally  reduced,  without  the  through  rates  being  raised. 
As  illustrative  of  this  result,  which  has  occurred  in  many 
sections  of  the  Union,  it  may  be  stated  that  rates  on  grain 
from  western  Illinois  to  the  Atlantic  seaboard  are  now, 
for  the  first  time,  no  higher  than  the  rates  from  St.  Louis. 
The  same  is  true  of  rates  from  western  Missouri  and  Iowa, 
as  compared  with  the  rates  from  Kansas  City  and  Omaha 
respectively.  And  in  general  it  appears  that  throughout 
the  vast  territory  of  the  northern  Mississippi  valley,  this 
feature  of  the  law  has  operated  to  the  manifest  advantage 
of  shippers  of  produce  from  the  smaller  towns  and  sta- 
tions. Nearly  all  of  the  leading  roads  of  the  eastern, 
middle,  and  central  States  are  said  to  be  complying 
strictly  with  the  statute. 

But  in  large  sections  of  country  where  competition  with 
water  routes  more  or  less  directly  prevails, — and  espe- 
cially in  the  southern  States, — the  railroad  companies  have 
assumed  to  consider  their  circumstances  and  conditions 
as  bringing  them  within  the  exceptions  to  the  general 
rule,  and  are,  by  no  means,  universally  complying  with  it. 

Such  are  some  of  the  results  of  the  Interstate  Commerce 
Law,  as  viewed  from  the  standpoint  of  a  friendly  critic. 
On  the  other  hand,  it  is  to  be  said  that  the  law  has  been 
ineffectual  to  prevent  wars  of  rates,  a  number  of  which, 
of  unusual  violence,    have  occurred  since  it  took  effect. 


254  PUBLIC  REGULATION  OF  RAILWAYS. 

This  is  not  surprising,  as  the  prohibition  of  pooling  de- 
prived the  railroads  of  the  only  reasonably  effective  means 
yet  devised,  of  preventing  this  disastrous  species  of  exces- 
sive competition.  Before  the  era  of  pooling,  the  certainty 
of  financial  disaster  from  rate  wars  did  not  prevent  their 
constant  occurrence ;  and  the  check  which  some  supposed 
would  be  placed  upon  them  by  the  operation  of  the  long- 
and  short-haul  rule  has  evidently  not  been  successful. 
While  non-competitive  points  may  not  have  been  placed 
at  the  same  disadvantage  as  heretofore  during  this  state 
of  things,  yet  it  is  not  improbable  that  very  pernicious 
discriminations  have  been  practised  under  some  covert 
form.  And  this  suspicion  is  largely  confirmed  by  the  re- 
cent disclosure  of  the  system  of  underbilling,  which  since 
the  passage  of  the  act  has  prevailed  more  extensively 
than  ever  before.  It  is  plain,  too,  that  the  taking  of 
'traffic  at  less  than  reasonable  figures  may  result  in  in- 
jury to  other  companies  than  those  which  participate  in 
the  cut  of  rates.  The  companies  which  are  conservative 
enough  to  hold  aloof  from  the  strife  may  lose  more  or 
less  business  which,  under  the  usual  and  normal  adjust- 
ment of  trafific  charges,  they  would  receive.  This  loss,  if 
continued,  must  result  in  detriment  not  only  to  the  car- 
riers, but  thereby  to  the  local  communities  which  they 
serve.  These  considerations,  as  well  as  the  general  desira- 
bility of  steadiness  in  rates,  make  it  to  the  interest  of  the 
public  as  well  as  the  carriers  that  wars  of  rates  should 
cease.  The  difficulty  of  checking  them  is  greatly  increased 


INTERSTA  TE  COMMERCE  RAIL  WAY  A  SSOCIA  TION.    255 

by  the  fact  that  the  commission  has  no  authority  (as  it 
has  decided)  to  protect  a  conservative  company  against 
the  cut-throat  competition  of  a  rival.  It  is  not  improba- 
ble, however,  that  the  vital  necessity  for  concert  of  action 
between  competing  lines  will  suggest  some  device  which, 
while  not  falling  within  the  prohibition  of  the  law  against 
pooling,  will  in  a  measure  accomplish  the  results  the 
pooling  system  was  intended  to  secure,  in  maintaining 
traffic  charges  and  preventing  ruinous  strife.  During  the 
present  year  (1889)  much  attention  has  been  attracted  by 
the  efforts  of  some  of  the  leading  western  roads  to  per- 
fect an  association  with  the  avowed  purpose  of  "  enforce- 
ment of  the  Interstate  Commerce  Law,  and  the  arbitra- 
tion of  all  differences  between  companies."  An  important 
feature  of  the  scheme  is  the  provision  intended  to  place 
the  responsibility  for  the  maintenance  of  traffic  charges 
directly  upon  the  principal  officers  of  the  companies,  and 
to  minimize  the  powers  of  subordinates  in  this  respect. 
Some  of  the  leading  financiers  of  the  country  participated 
in  the  conferences,  which  resulted  in  the  formation  of  the 
"  Interstate  Commerce  Railway  Association,"  A  mem- 
ber of  the  Federal  Railroad  Commission  was  called  to  the 
position  of  executive  head  of  the  association,  and  resigned 
his  public  office  to  accept  it.  Considerable  faith  was  felt 
in  the  stability  of  this  organization,  and  in  its  effective- 
ness for  the  prevention  of  hostile  action  between  the  par- 
ties to  it.  Unfortunately  the  first  severe  test  to  which  it 
has  been  put  has  resulted  in  the  withdrawal  of  one  of 


256  PUBLIC  REGULATION  OF  RAILWAYS. 

the  leading  companies  from  the  association,  and  the  re- 
sumption by  it  of  an  independent  poHcy  ;  an  act  which 
forcibly  illustrates  the  truth  of  a  prominent  traffic  mana- 
ger's remark  that  "  additional  pledges  as  distinguished  from 
additional  means  of  enforcement  seem  likely  to  be  of  very 
little  use,  even  though  they  be  executed  with  the  greatest 
solemnity."  The  permanence  and  increasing  usefulness 
of  the  association  is,  however,  by  no  means  despaired  of 
by  its  friends  on  account  of  this  defection,  and  for  the 
present  at  least,  peaceful  conditions  appear  to  prevail 
among  its  members. 

But  even  where  no  actual  warfare  exists  between  com- 
petitive companies,  and  traffic  charges  are  so  adjusted  as 
to  comply  with  the  provisions  of  the  law,  and  at  the  same 
time  produce  adequate  revenues  to  the  stronger  lines,  the 
situation  of  the  weaker  lines  is  both  injuriously  and  un- 
justly affected  by  the  long-  and  short-haul  rule.  Its  ten- 
dency is  beneficial  to  the  former,  but  detrimental  to  the 
latter,  and  is  apt  in  the  long  run  to  be  detrimental  to  the 
local  patrons  of  the  latter  also.  Its  operation  in  many 
cases  certainly  looks  like  diminishing  the  revenues  of  the 
weak  lines  without  benefiting  their  patrons  ;  and  should  a 
case  be  presented  where  the  law  is  proven  to  have  this 
effect,  its  application  to  such  a  case  could  hardly  be 
judicially  allowed.  That  the  tendency  towards  the  uni- 
fication and  consolidation  of  different  and  competitive 
lines  has  been  decidedly  increased  by  the  anti-pooling 
and  the  long-  and   short-haul  sections  of  the  Interstate 


POOLING.  257 

Commerce  Law  can  hardly  be  doubted.  It  has  been  men- 
tioned that  many  of  the  railroad  companies  in  the  terri- 
tory south  of  the  Potomac  and  Ohio  and  east  of  the  Mis- 
sissippi have  assumed  to  operate  under  the  exception  to 
the  fourth  section  of  the  act,  and  to  charge  in  many  cases 
a  greater  amount  in  the  aggregate  for  a  shorter  than  for  a 
longer  distance  over  the  same  line  in  the  same  direction, 
the  shorter  being  included  within  the  longer  distance. 
Recently  the  Commission  determined  upon  a  general 
revision  of  railroad  rates  in  the  territory  named,  with 
the  view  of  bringing  them  more  nearly  within  the  re- 
quirements of  the  general  rule  as  to  long  and  short 
hauls.  Such  action  under  the  conditions  of  trafific  and 
of  competition  in  the  South  seemed  to  threaten  no  little 
peril  to  the  finances  of  various  lines  and  systems  operating 
independently  within  that  territory. 

Pooling  was  forbidden  by  the  federal  law,  but  the  far 
more  radical  and  effective  method  of  destroying  competi- 
tion, by  consolidation  of  the  different  companies,  or  by  the 
acquisition  in  the  same  hands  of  controlling  interests  in 
each,  was  necessarily  left  to  the  legislation  of  the  States. 
Among  the  most  important  of  the  southern  railway 
systems  is  the  Richmond  &  Danville,  which '  ramifies 
through  the  Carolinas,  Georgia,  and  Alabama,  and  reaches 
the  North  by  an  all-rail  route  via  Washington  city,  or  by 
rail  and  water  via  West  Point,  Virginia. 

Among  its  principal  competitors  were  the  Central  Rail- 
road of  Georgia  (operating  a  network  of  roads  in  that  and 


258  PUBLIC  REGULATION  OF  RAILWAYS. 

other  States,  and  a  steamship  line  via  Savannah  to  the 
North),  and  the  East  Tennessee,  Virginia,  &  Georgia 
Railroad,  having  its  principal  northern  outlet  over 
the  Norfolk  &  Western.  The  Richmond  &  Danville 
acquired  interests  in  the  E.  Tenn.,  Va.,  &  Georgia, 
early  in  the  year  1887  ;  but  soon  after  the  determination 
of  the  Interstate  Commerce  Commission  to  revise  the 
railroad  rates  of  the  South  was  made  public,  the  financial 
world  was  startled  by  the  announcement  that  the  two 
last-named  railway  systems,  and  also  the  Georgia  Central, 
embracing  in  the  aggregate  some  7,000  miles  of  road, 
had,  through  the  instrumentality  of  the  Richmond  & 
West  Point  Terminal  Company,  been  all  brought  under  a 
common  control  and  management.'  The  acquisition  of 
still  other  properties  under  the  same  management  is  sug- 
gested, and  will  probably  be  ultimately  accomplished. 
This  condition  of  things  may  be  almost  directly  at- 
tributed to  the  Interstate  Commerce  Law.  By  prohibiting 
pooling,  that  measure  invited  consolidation.  It  destroyed 
a  confederacy,  and  an  empire  rises  from  the  ruins.  In  an 
interview  with  Mr.  John  H.  Inman,  president  of  the 
Richmond  Terminal  Company,  as  published  in  the  At- 
lanta Constitution  of  November  11,  1888,  he  is  reported 
as  having  said,  concerning  the  efTect  of  this  railway  com- 
bination on  the  commercial  and  industrial  interests  of  the 
South  :  "  We  propose  to  make  Savannah  by  far  the  most 

'  Certain  legal  obstacles  have,  however,  since  arisen  in  the  way  of  this 
combination. 


DANGEROUS  RESULTS.  259 

important  of  all  southern  seaports.  To  do  this,  it  will,  of 
course,  be  necessary  to  take  away  a  great  part  of  the 
business  which  now  goes  to  Norfolk.  .  .  .  Instead 
of  making  Norfolk  our  coast-distributing  point,  we  shall 
turn  our  commerce  southward,  and  deliver  it  at  Bruns- 
wick and  Savannah,  each  of  which  ports  will  be  vastly 
benefited." 

This  language  suggests  one  of  the  dangerous  results 
that  may  follow  upon  the  concentration  in  a  few  hands  of 
such  power  over  the  commerce  of  a  vast  territory.  If 
the  traffic  of  the  region  controlled  by  the  Terminal  Com- 
pany, or  of  any  part  of  it,  has  heretofore,  by  an  inequita- 
ble adjustment  of  traffic  charges,  been  diverted  from  its 
natural  channels  to  Norfolk ;  and  if  under  a  fair  and 
natural  arrangement  of  charges  and  facilities  it  would 
seek  its  tide-water  outlet  at  Savannah  or  Brunswick,  then 
it  is  proper  that  Norfolk  should  to  that  extent  be  the 
loser  and  the  more  southern  ports  the  gainers.  But,  if 
Mr.  Inman  is  correctly  reported,  the  railway  management 
does  not  propose  to  let  the  traffic  originating  on  the  lines 
of  his  system  ("  our  commerce,"  he  calls  it)  seek  its  own 
outlet.  On  the  contrary,  he  declares  that :  "  Instead  of 
making  Norfolk  our  coast-distributing  point,  we  shall 
turn  our  commerce  southward."  If  this  diversion  of 
traffic  is  to  be  accomplished  by  making  rates  and  connec- 
tions and  offering  facilities  in  one  direction,  which  are 
refused  in  another,  merely  for  the  purpose  of  building  up 
one  port  and  injuring  its  rival,  or  of  forcing  traffic  over 


26o  PUBLIC  REGULATION  OF  RAILWAYS. 

one  route  which  naturally  would  pass  over  another,  it  is 
apt  to  meet  with  difficulties  in  the  provisions  of  the  Inter- 
state Commerce  Law.  Perhaps  Mr.  Inman  merely  meant 
that  under  the  changed  condition  of  things  a  large 
amount  of  the  business  now  done  through  Norfolk  would 
naturally  go  to  Savannah  and  Brunswick ;  and  this  may 
be  true.  It  is  not  likely  that  any  improper  means  will  be 
attempted  to  deprive  Norfolk  of  its  legitimate  business, 
or  if  attempted  that  it  will  be  permitted.  Upon  the 
whole,  there  is  nothing  in  this  combination  of  railway 
interests  to  excite  public  apprehension.  Compliance  with 
the  law  and  with  the  requirements  of  the  commission  is 
facilitated,  many  elements  of  injustice  to  shippers  and  of 
discord  between  the  carriers  are  eliminated,  and  the 
general  public,  as  well  as  the  railroad  companies,  are 
unquestionably  benefited  by  the  result. 

The  modern  device  of  the  "trust,"  as  a  means  of  uni- 
fying industrial  interests  and  eliminating  competition,  has 
not  yet  been  applied  in  the  field  of  railroad  transportation. 
An  approach  to  it  is  exhibited  in  the  operation  of  the 
Richmond  Terminal  Company  above  referred  to,  where 
the  capacity  of  that  corporation  for  the  acquisition  and 
ownership  of  the  stock  of  other  companies  has  been 
largely  utilized.  This,  however,  presents  a  different  case 
from  a  "  railway  trust,"  which,  by  analogy  to  other  indus- 
trial combinations  to  which  that  name  has  been  given, 
would  be  effected  by  a  surrender  of  the  stock  (and  with  it 
the  controlling  power)  of  each  separate  company  into  the 


TRUST  cp:rtificates.  261 

hands  of  trustees,  in  exchange  for  "  trust  certificates," 
bearing  such  ratio  in  amount  to  the  par  value  of  the 
shares  in  the  several  companies,  as  might  be  agreed  on  in 
the  instrument  creating  the  trust.  The  several  properties 
thus  fall  under  the  management  of  a  single  board,  namely 
the  trustees,  who,  holding  the  stock,  may  name  the  direc- 
tory and  direct  the  policy  of  each  company.  The  joint 
aggregate  amount  of  net  earnings  is  distributed  among 
the  holders  of  trust  certificates, — the  stockholders  in  the 
respective  companies  as  such  having  in  the  distribution 
of  profits  disappeared  from  consideration. 

The  scheme  of  trust  here  briefly  outlined,  would  prob- 
ably require  for  its  successful  operation  the  concurrence 
of  the  entire  stockholding  interest  of  each  company  em- 
braced in  it ;  and  herein  it  seems  likely  will  be  found  the 
chief  difificulty  in  perfecting  such  a  scheme.  Should  it 
ever  be  perfected,  a  far  more  stringent  public  supervision 
and  control  of  the  railroad  transportation  of  the  country, 
will  inevitably  be  demanded. 


CHAPTER   IX. 

EXPRESS    TRAFFIC. 

The  Relations  of  Express  to  Railroad  Carriers  one  of  Contract 
Merely — Effect  of  Wars  of  Express  Rates  on  Railway 
Charges  and  Earnings — The  Express  Company  the  Means 
of  Warfare  between  Rival  Railroads — The  Case  of  the 
Express  Companies  before  Congress  and  the  Conwiission. 

The  express  business,  which  now  embraces  a  large  and 
increasing  amount  of  traffic  which  was  formerly  carried 
on  by  the  railroads  as  freight  business,  has  not  generally 
been  made  the  subject  of  public  regulation.  There  can 
scarcely  be  any  doubt,  however,  of  the  right  of  public 
regulation  of  these  agencies  of  commerce  ;  for  this  right 
is  not  based  exclusively  upon  the  corporate  character  of 
the  agency  or  the  grant  to  it  of  the  power  of  eminent 
domain,  but  exists  wherever  capital  or  property  "  is  used 
in  a  manner  to  make  it  of  public  consequence  and  affect 
the  community  at  large."     (Munn  vs.  Illinois,  supra.) 

The  legal  status  of  the  express  companies  is  undoubt- 
edly that  of  common  carriers,  and  such  they  have  fre- 
quently been  held  to  be,  although  in  connection  with  the 
carrying  business  they  may  perform  other  services.  (Red- 
field  on  Railways,  vol.  ii.,  pp.  4,  24.) 

There  are  ten  or  twelve  principal  express  carriers  oper- 

262 


EXFUESS    COMPANIES.  263 

ating  in  the  United  States,  and  several  of  them — enjoying 
perhaps  the  most  extensive  and  widely  ramifying  business 
of  any — are  not  incorporated  companies  ;  but  though 
interests  in  them  are  evidenced  by  transferable  shares  of 
stock,  the  shareholders  are  nevertheless  liable  as  partners 
among  themselves  and  to  the  public. 

Of  course  the  express  companies  have  to  avail  them- 
selves largely  of  railroad  facilities.  Usually  they  do  not 
own  the  cars  on  which  their  freight  is  carried  ;  but  they 
contract  with  the  railroad  companies  for  necessary  facili- 
ties on  their  trains,  either  by  renting  so  much  car  space, 
or  by  paying  a  certain  price  for  estimated  or  actual 
weight  of  freight,  or  (which  is  the  most  usual  method),  by 
an  agreement  for  division  of  the  gross  earnings  received 
by  the  express  company,  for  its  entire  service  in  respect 
to  the  article  transported.  "  The  reason  is  obvious  why 
special  contracts  in  reference  to  this  kind  of  business  are 
necessary.  The  transportation  required  is  of  a  kind  which 
must,  if  possible,  be  had  for  the  most  part  on  passenger 
trains.  It  requires  not  only  speed,  but  reasonable  cer- 
tainty as  to  the  quantity  that  will  be  carried  at  any  one 
time.  As  the  things  carried  are  to  be  kept  in  the  personal 
custody  of  the  messenger  or  other  employ^  of  the  express 
company,  it  is  important  that  a  certain  amount  of  car 
space  should  be  specifically  set  apart  for  the  business,  and 
that  this  should,  as  far  as  practicable,  be  put  in  the  ex- 
clusive possession  of  the  expressman  in  charge." 

The  agreement  between  the  railroad  and  the  express 


264  PUBLIC  REGULATION  OF  RAILWAYS. 

company  therefore,  always  includes  the  carriage  of  the 
express  messenger,  in  personal  custody  of  the  freight. 
The  express  companies  are  recognized  as  district  carriers 
from  the  railroad  companies,  and  the  latter  are  frequently 
exempted  by  statutory  provisions  from  liability  as  carriers 
to  the  owners  of  express  freight  consigned  by  way  of  an 
independent  express  company  which  uses  their  lines. 

Some  railroad  companies,  however,  undertake  to  do 
their  own  express  business,  without  the  aid  or  interven- 
tion of  a  different  agency  ;  and  in  some  cases  there  are 
associations  of  connecting  railroad  companies  for  the 
purpose  of  carrying  express  traffic  in  a  manner  quite 
analogous  to  that  adopted  in  the  Dispatch  Freight  lines. 

The  usual  facilities  are  furnished  for  the  business,  simi- 
lar to  those  furnished  by  the  express  companies,  and  the 
carriage  is  usually  on  passenger  trains,  with  a  special 
agent  in  personal  charge  of  the  freight. 

So  that  a  shipper  desiring  to  forward  by  express,  on 
railroad  lines  which  do  their  own  express  business,  may 
generally  have,  upon  paying  the  proper  additional  freight 
charges,  substantially  the  same  facilities  as  those  afforded 
by  the  independent  express  companies. 

It  is  evident,  though,  from  what  has  been  said,  that 
very  different  arrangements  and  accommodations  are 
necessary  for  handling  the  express  traffic,  from  those 
which  are  used  in  handling  the  ordinary  freight ;  render- 
ing almost  indispensable  a  separate  department  for  the 
management  of  the  express  business,  where  the  latter  is 


EXPHESS  CASES.  265 

of  any  considerable  magnitude.  And  it  has  been  found 
difficult  by  some  railroad  companies  to  render  proper 
express  facilities  to  the  public  and  at  the  same  time  make 
that  branch  of  their  service  remunerative  to  themselves. 
Accordingly  they  have  surrendered  the  express  business 
over  their  lines  to  some  one  of  the  regular  express  com- 
panies under  contract  as  above  described. 

Under  these  contracts  the  railroad  company  becomes 
the  carrier  of  a  carrier,  and  the  rights  and  obligations  of 
the  parties  arise  out  of  the  contract  only,  the  railroad 
companies  being  under  4ao  legal  obligation  in  the  absence 
of  statutory  requirements,  to  furnish  to  express  carri- 
ers the  special  facilities  which  these  contracts  usually 
provide. 

The  claim  has  been  made  by  express  companies,  that, 
independent  of  any  contract  with  railroad  companies, 
they  are  entitled  to  have  from  the  latter  all  facilities  and 
accommodations  for  carrying  express  freight  over  railroad 
lines,  which  are  usually  accorded  by  the  contracts  between 
express  and  railroad  companies. 

In  the  "  Express  Cases"  (117  U.  S.,  p.  i),  one  of  the 
suits  was  that  of  the  Southern  Express  Co.  as  plaintiff, 
against  the  St.  L.,  I.  M.,  &  S.  R.  R.  Co.,  as  defendant. 
Among  other  things  the  plaintiff  prayed  :  "  That  the  said 
defendant  may  be  decreed  by  this  court  to  transport  at 
all  times  the  express  matter,  safes,  and  messengers  of  the 
said  Southern  Express  Co.,  by  the  same  trains  and  with 
the  same  accommodations  thereon,  and   in  its  depots  and 


266  PUBLIC  REGULATION  OF  RAILWAYS. 

stations,  as  it  may  transport  its  own  express  matter,  or 
as  it  may  accord  to  itself." 

In  answer  it  was  said  that :  "  Defendant  claims  the 
right  to  carry  and  transport  what  is  called  express  matter 
in  the  spaces  in  its  cars  selected  by  itself,  and  under  the 
supervision,  care,  and  control  of  its  own  employes,  and 
has  refused,  and  does  refuse  to  complainant,  the  right  to 
have  allotted  to  itself  any  particular  space  in  defendant's 
express  cars,  for  its  exclusive  use,  or  to  permit  its  messen- 
gers to  ride  in  the  express  cars,  and  to  take  charge  of 
complainant's  express  freight." 

The  railroad  company,  however,  having  undertaken 
to  do  the  express  business  over  its  line  on  its  own  ac- 
count, avowed  its  willingness  to  take  and  carry  any  ex- 
press matter  or  freight  that  the  express  company,  as  any 
ordinary  shipper,  might  offer  to  it. 

The  United  States  Circuit  Court  in  Kansas,  where  the 
original  suit  was  instituted,  held  and  decreed,  among 
other  things  (Justice  Miller  of  the  United  States  Supreme 
Court  sitting  and  concurring) :  "  That  it  is  the  duty  of 
the  defendant  to  carry  the  express  matter  of  the  plain- 
tiff's company,  and  the  messengers  or  agents  in  charge 
thereof,  at  a  just  and  reasonable  rate  of  com.pensation ; 
and  that  such  compensation  is  to  be  found  and  established 
as  a  unit,  and  is  to  include  as  well  the  transportation  of 
such  messengers  or  agents,  as  of  the  express  matter  in 
their  custody  and  under  their  control." 

And  the  court  further  undertook  to  prescribe,  by  its 


•    I 


OPINIOIV  OF  SUPREME   COURT.  267 

decree,  the  terms,  the  manner,  and  the  extent  to  which 
the  railroad  companies  should  give  facilities  to  the  ex- 
press companies. 

But  when  the  case  came  on  appeal  before  the  Supreme 
Court  of  the  United  States,  the  decree  of  the  Circuit  Court 
was  reversed,  and  it  was  held  that,  in  the  absence  of  legis- 
lation for  the  purpose,  the  courts  cannot  compel  railroad 
companies  to  enter  into  such  arrangements  with  express 
carriers.  Chief-Justice  Waite  delivered  the  opinion  of  the 
court  (from  which,  however,  Justices  Miller  and  Field 
dissented),  in  the  course  of  which  it  was  said  :  "  So  long 
as  the  public  are  served  to  their  reasonable  satisfaction, 
it  is  a  matter  of  no  importance  who  serves  them.  The 
railroad  company  performs  its  whole  duty  to  the  public  at 
large,  and  to  each  individual,  when  it  affords  the  public 
all  reasonable  express  accommodations.  If  this  is  done, 
the  railroad  company  owes  no  duty  to  the  public,  as  to  the 
particular  agencies  it  shall  select  for  that  purpose.  The 
public  require  the  carriage,  but  the  company  may  choose 
its  own  appropriate  means  of  carriage,  always  provided 
they  are  such  as  to  insure  reasonable  promptness  and 
security."  And  it  was  further  said  that  :  "  The  regulation 
of  matters  of  this  kind  is  legislative  in  its  character,  not 
judicial.  To  what  extent  it  must  come,  if  it  comes  at  all, 
from  Congress,  and  to  what  extent  it  may  come  from  the 
States,  are  questions  we  do  not  now  undertake  to  decide  ; 
but  that  it  must  come,  when  it  does  come,  from  some  source 
of  legislative  power,  we  do  not  doubt.     The  legislature 


268  PUBLIC  REGULATION  OF  RAILWAYS. 

may  impose  a  duty,  and  when  imposed  it  will  if  necessary 
be  enforced  by  the  courts,  but  unless  a  duty  has  been 
created,  either  by  usage  or  by  contract  or  by  statute,  the 
courts  cannot  be  called  on  to  give  it  effect."  Under  this 
decision,  the  railroad  companies,  in  the  absence  of  legisla- 
tion imposing  additional  duties,  may  do  their  own  express 
business,  or  may  employ  for  the  purpose  the  agency  of 
one  or  more  of  the  independent  express  companies. 

Each  railroad  company,  as  a  general  rule,  only  admits 
one  express  company  to  the  use  of  its  express  facilities, 
so  that  on  any  particular  line  of  road,  the  express  com- 
pany has  the  same  monopoly  and  control  of  its  traffic,  as 
the  railroad  company  has  of  its  ordinary  freight  trafific. 
Nor  is  there  any  peculiarity  in  the  express  traf^c,  or  any 
distinction  between  it  and  many  kinds  of  common  freight, 
except  in  the  method  of  transportation. 

In  other  words,  there  are  many  articles  usually  carried 
as  common  freight,  which  the  shipper  may,  if  special 
speed  and  care  are  desirable,  or  if  the  express  companies 
offer  better  terms,  send  by  express.  Usually  the  contracts 
between  the  railroads  and  express  companies  provide  that 
the  latter  shall  not  carry  such  articles  as  may  conveniently 
be  taken  as  ordinary  freight,  except  at  rates  considerably 
higher  than  first  class  railroad  freight  rates.  This  provi- 
sion is  of  course  intended  to  prevent  the  express  company 
from  unduly  encroaching  on  the  classes  of  traffic  which  the 
railroad  companies  can  conveniently  and  profitably  handle 
themselves.   And  it  is  easy  to  see  that  but  for  this  limita- 


EXISTENCE   OF  ABUSES.  269 

tion  on  its  charges,  the  express  company  might  easily,  by 
sufficiently  reducing  its  rates,  take  from  the  railroad  a 
very  large  proportion  of  its  most  valuable  and  hence  most 
profitable  trafific.  Where  different  express  companies 
operate  over  two  or  more  lines  of  railroad  which  at  certain 
points  are  competitive,  it  is  evident  that  there  may  be 
competition  for  the  express  business  at  the  same  points  ; 
and  it  is  probable  that  the  contract  stipulation  above 
referred  to,  fixing  the  express  ratesat  figures  considerably 
higher  than  those  on  the  same  articles  carried  as  common 
freight,  is  the  principal  safeguard  against  wars  of  express 
rates,  similar  to  such  as  have  frequently  prevailed  between 
railroad  companies.  This  in  part  accounts  for  the  fact  that 
complaints  of  discrimination  between  places  and  persons 
havebeen  much  less  common  against  express  than  against 
railroad  companies. 

Abuses  of  this  sort  do,  however,  exist,  and  while  oper- 
ating pro  tanto  the  same  kind  of  public  injury  as  arises 
from  railroad  freight  discriminations,  they  may  also  very 
seriously  impair  the  revenues  of  some  of  the  railway 
lines  over  which  the  express  carriers  operate.  In  fact 
the  express  company  may  be  made  the  instrument  of 
warfare  by  one  railroad  company  against  another,  its  com- 
petitor. For  example,  two  cities,  between  which  there  is 
a  heavy  express  traffic,  are  connected  by  two  independent 
lines  of  railroad,  over  each  of  which  a  different  express 
company  operates.  For  some  reason,  one  of  these  lines 
is  better  adapted  for  the  service  than  the  other,  and  con- 


270  PUBLIC  REGULATION  OF  RAILWAYS. 

sequently  the  bulk  of  the  express  business  passes  over  it. 
The  other  railroad  company,  seeing  this,  absolves  its  ex- 
press company  from  the  stipulation  in  regard  to  rates,  and 
leaves  it  free  to  make  such  reductions  as  will  take  the 
express  freight  from  the  rival  line,  and  perhaps  a  con- 
siderable amount  of  the  high-class  railroad  freight  also. 
The  latter  company,  both  to  retain  its  own  traffic,  and 
to  enable  the  express  company  with  which  it  cooperates 
to  do  the  same,  is  compelled  by  its  adversaries'  action 
also  to  dispense  with  the  provision  against  a  reduction  of 
express  charges.  The  inevitable  result  is  the  transfer  of 
the  most  lucrative  portion  of  the  freight  traffic  into  the 
hands  of  the  express  companies,  causing  a  serious  drain  on 
the  railway  revenues ;  while  in  the  operation  of  the  ex- 
press business  there  are  sure  to  follow  those  secret 
rebates,  unfair  personal  discriminations,  and  relatively 
unjust  charges  to  non-competitive  points,  which  have 
aroused  so  much  public  odium  against  the  railroad  trans- 
portation system.  That  these  conditions  of  excessive 
competition  have  not  more  frequently  arisen  in  the 
express  transportation  system  is  also  largely  due  to  the 
fact  that  the  number  of  competitors  is  very  small  com- 
pared with  the  number  of  competitive  railroad  lines,  and 
to  the  further  fact  that  the  express  companies,  either  by 
express  or  tacit  understanding,  have  to  a  large  extent 
parcelled  out  the  territory  of  the  country  among  them- 
selves, so  that  points  of  hostile  contact  between  them  are 
comparatively  few. 


JURISDICTION  OF    THE   COMMISSION.  27 1 

From  the  foregoing  explanation  of  the  relations  be- 
tween the  railroad  and  the  express  companies,  it  is  easy 
to  see  how  easily  regulative  legislation  which  embraces 
the  former  companies  alone,  may  be  evaded  by  a  simple 
modification  of  existing  arrangements  between  these  co- 
operative carriers.  Hence  it  would  seem  to  be  plain  that 
any  legislation  for  the  regulation  of  transportation  by 
railroad  should  embrace  the  independent  express  com- 
panies, so  far  as  they  do  business  over  railroad  lines. 

It  is  somewhat  singular  that  in  all  the  discussions  in 
Congress  on  the  subject  of  railway  regulation,  which  pre- 
ceded the  passage  of  the  act  for  that  purpose,  and  in  the 
many  volumes  of  testimony  and  reports  concerning  it, 
there  is  little  or  nothing  bearing  on  the  relations  of  the 
express  to  the  comnion  freight  trafftc,  and  the  pro- 
priety of  including  the  former  in  the  terms  of  statutory 
regulation. 

Very  soon  after  the  organization  of  the  Interstate 
Commerce  Commission,  the  question  was  presented 
whether  the  express  companies  of  the  country  had  been 
placed  by  the  act  of  Congress  under  its  jurisdiction. 
Counsel  for  the  express  companies  urged  many  argu- 
ments against  the  jurisdiction  of  the  commission  over 
that  class  of  carriers  ;  some  of  a  general  character,  applic- 
able to  any  regulative  legislation  ;  but  mostly  directed  to 
the  phraseology  and  constitutionality  of  certain  sections 
of  the  Interstate  Commerce  Act.  It  was  suggested 
rather  than  asserted,  that  express  companies  so  far  as  they 


272  PUBLIC  REGULATION  OF  RAILWAYS. 

use  railway  facilities,  are  not  common  carriers  in  the 
usual  acceptation  of  the  term,  but  stand  in  the  relation 
rather  of  shippers  by  rail. 

It  was  pointed  out,  too,  that  these  companies  render  to 
their  patrons  many  other  services  besides  that  of  carrying  or 
forwarding — such  as  collecting  money,  indorsing  and  pro- 
testing negotiable  paper,  attending  to  the  recordation  of 
deeds,  giving  bonds  to  clear  goods  at  custom-houses,  and 
other  matters  not  directly  connected  with  transportation. 

Great  stress  was  laid  upon  the  fact  that  horse-  and  wagon- 
service  for  the  collection  and  delivery  of  packages,  and 
for  making  connection  between  different  railway  stations 
in  the  cities,  constitutes  a  very  large  and  essential  ele- 
ment of  the  express  business.  Attention  was  called  to 
the  very  general  use  of  steamboat  and  stage-coach  lines 
by  the  express  companies,  as  distinguishing  them  from 
carriers  wholly  by  railroad.  The  fact  that  many  of  these 
companies  are  unincorporated,  and  that  none  of  them  had 
ever  been  granted  or  had  exercised  the  public  right  of 
eminent  domain,  was  alluded  to  in  the  arguments.  It  was 
somewhat  confidently  asserted  that  the  public  evils  which 
gave  rise  to  popular  complaints  against  the  railroad  trans- 
portation system  had  no  place  in  the  express  business; 
and  in  support  of  this  assertion  the  debates  in  Congress, 
the  reports  of  committees,  and  the  testimony  taken  by 
them  were  referred  to  as  containing  not  a  syllable  of  com- 
plaint against  the  express  companies.  The  frequent  allu- 
sion to  express  companies  by  name,  in  other  acts  of  Con- 


EXEMPTION   OF  EXPRESS   COMPANIES.  2"/ 1 

gress,  was  contrasted  with  the  entire  absence  of  any  men- 
tion of  them  in  the  Interstate  Commerce  Act,  as  strongly 
indicating  the  absence  of  any  legislative  intent  to  include 
them  in  the  latter.  It  was  declared  that  a  strict  enforce- 
ment against  the  express  companies  of  the  requirements 
of  the  act  in  regard  to  publication  and  posting  of  rates 
would  entail  an  expense  on  them  of  many  millions  of 
dollars,  and  the  printing  of  a  volume  of  matter  almost 
beyond  conception. 

Many  of  the  requirements  and  prohibitions  of  the  act, 
it  was  said,  related  to  matters  wholly  foreign  to  the  ex- 
press business,  and  it  was  contended  that  all  its  provisions 
should  be  strictly  construed,  because  of  the  penalties 
imposed  for  their  violation. 

If  so  construed,  in  the  light  of  all  the  circumstances 
surrounding  the  origin  and  enactment  of  the  law,  and  of 
the  well-known  public  evils  it  was  designed  to  remedy,  it 
was  confidently  maintained  that  the  express  companies 
could  not  be  included  within  its  provisions,  or  brought 
under  the  jurisdiction  of  the  commission.  The  immedi- 
ate question  which  gave  rise  to  the  consideration  of  the 
status  of  the  express  companies  under  the  Interstate  Com- 
merce Act  was  that  of  their  objection  to  publish  their 
rates  and  file  schedules  thereof  with  the  commission. 
Some  of  the  companies  acknowledged  the  obligation  and 
filed  their  schedules,  but  others,  for  reasons  advanced  by 
them,  and  just  referred  to,  denied  the  obligation.  Many 
pf  these  reasons  the  commission  considered  insufficient. 


274  PUBLIC  REGULATION  OF  RAILWAYS. 

The  legal  status  of  express  companies  as  common  carriers 
was  assumed  without  discussion,  and  it  was  said  that 
"  there  is  no  reason  apparent,  in  the  case  of  express  com- 
panies, why  the  obligations  and  restrictions  of  the  act 
should  not  be  held  effective  upon  their  business,  so  far  as 
it  is  applicable  thereto,  arising  from  the  mere  fact  that 
other  business  is  also  done  by  them,  to  which  those  pro- 
visions are  inapplicable,  or  that  sometimes  a  further  ser- 
vice than  that  of  transportation  is  performed  in  respect  to 
the  articles  carried." 

Again  :  **  Their  exclusion  from  the  operation  of  the 
statute,  upon  the  ground  that  in  cities  and  large  towns  it 
is  customary  for  express  companies  to  collect  and  deliver 
freight,  would  seem  to  be  too  refined  a  construction  to  be 
placed  upon  the  law.  Some  railroads  do  the  same  thing, 
and  it  is  much  more  common  in  England  than  here." 

The  extravagant  statements  as  to  the  cost  of  publishing 
express  rates,  and  the  enormous  bulk  of  the  publication, 
was  met  by  the  commission  by  a  reference  to  the  fact  that 
several  of  the  express  companies  had  already  filed  their 
schedules  with  the  commission,  "  and  although  the  tariffs 
so  filed  are  made  up  on  different  plans,  yet  they  are  each 
intelligible,  and  are  sufificient  to  negative  the  idea  that  the 
thing  proposed  by  Congress  is  not  possible  of  accomplish- 
ment by  this  class  of  carriers."  And,  "  in  fact,  it  seems 
necessary  that  agents  of  express  companies  should  be  in- 
structed explicitly  as  to  charges  to  be  made  by  them,  and 
if  they  can  be  intelligently  notified  by  instructions  from. 


THE   LAW  HIGHLY  REMEDIAL.  275 

the  general  offices,  it  would  seem  quite  possible  to  inform 
the  public  also."  Again  it  was  said  :  "  Looking  at  the 
sections  of  the  act  in  detail,  so  far  as  they  declare  princi- 
ples or  announce  requirements,  and  they  will  be  seen  to 
be  quite  generally  applicable  as  well  to  the  business  of 
express  companies  as  to  that  of  railroad  companies." 
And  "  while  this  statute  contains  certain  provisions  for 
penalties,  .  .  .  nevertheless,  the  statute  as  a  whole 
should  be  regarded  as  highly  remedial  in  its  provisions," 
and  hence  should  be  construed  fairly  and  liberally,  and 
not  with  that  strictness  applicable  to  a  penal  enactment." 

"  It  would  seem,  therefore,"  to  quote  further  from  the 
opinion  of  the  commission,  "  that  the  bringing  of  the  ex- 
press companies  within  the  salutary  provisions  of  the  act 
to  regulate  commerce  is  practicable  and  on  some  accounts 
desirable.  The  question  remains  whether  or  not  this  has 
been  accomplished  by  the  statute  as  it  stands. 

"In  respect  to  some  of  the  express  companies,  there  can 
be  little  if  any  doubt  that  they  are  fully  subject  to  the 
provisions  of  the  law.  When  a  railroad  company  itself 
conducts  the  parcel  traffic  on  its  line  by  its  ordinary 
transportation  stafT,  or  through  an  independent  bureau 
organized  for  the  purpose,  or  by  means  of  a  combination 
with  other  railroad  companies,  in  a  joint  arrangement  for 
the  transaction  of  this  so-called  express  business,  it  will 
not  be  seriously  questioned,  but  that  this  branch  of  the 
traffic  is  subject  to  the  act  to  regulate  commerce  as  fully 
as  the  ordinary  freight  traffic.     But  the  case  of  the  inde-. 


276  PUBLIC  REGULATION  OF  RAILWAYS. 

pendently  organized  express  companies  must  be  more 
carefully  considered." 

And  in  respect  to  them  it  was  said  that :  "  A  careful 
examination  of  the  history  and  the  language  of  the  act 
to  regulate  commerce  has  brought  the  commission  to  the 
conclusion  that  the  independent  express  companies  are 
not  included  among  the  common  carriers  declared  to  be 
subject  to  its  provisions  as  they  now  stand.  The  fact 
that  a  part  of  the  express  business  of  the  country  is,  as 
above  shown,  within  the  act,  while  another  and  a  much 
larger  part  of  the  same  business  is  not  so  described  as  to 
be  embraced  in  the  same  statute,  clearly  points  out  the 
necessity  of  further  legislative  action.  Either  the  entire 
express  business  should  be  left  wholly  on  one  side,  or  it 
should  all  be  included." 

The  commission,  in  its  first  annual  report,  argues  even 
more  strongly  the  necessity  of  further  action  of  Congress, 
for  the  purpose  of  either  expressly  including  the  inde- 
pendent express  companies  in  the  terms  of  the  law,  or 
else  of  exempting  from  its  operation  the  express  business 
as  carried  on  by  the  railroad  companies  themselves. 

Although  it  is  not  in  terms  advised  that  Congress 
should  adopt  either  one  of  these  suggestions  in  preference 
to  the  other,  yet  the  conclusion  seems  almost  irresistible, 
from  the  argument  of  the  commission,  that  the  indepen- 
dent express  companies  should  be  brought  under  the 
operation  of  the  act.  For  it  is  declared  in  the  report 
that :    "  The  railroad  companies,  which  see  fit  to  do  their 


NO  LINE   OF  DISTINCTION.  2/7 

own  express  business,  ought  not,  either  as  respects  prin- 
ciples or  methods,  to  be  subjected  in  the  management  of 
such  business  to  any  different  control  or  regulation  from 
that  which  the  independent  express  companies  of  the 
country  are  required  to  obey.  If  the  latter  are  not  within 
the  contemplation  of  the  act  to  regulate  commerce,  all 
express  business,  by  whomsoever  carried  on,  should  be 
excluded." 

While  to  show  how  subversive  of  the  intent  and  the 
benefits  of  the  act  the  adoption  of  the  latter  alternative 
would  be,  it  is  also  said,  "  that  no  clear  line  of  distinction 
exists  between  the  express  business  and  some  branches 
of  what  is  exclusively  railroad  service  ;  and  the  express 
business  may  easily  be  enlarged  at  the  expense  of  the 
other.  Those  roads  which  now  do  their  own  express 
business,  through  a  nominal  corporation,  might  hand 
over  to  this  shadow  of  their  corporate  existence  the 
dressed-meat  or  live-stock  business,  or  the  fruit  transpor- 
tation, or  any  other  business  in  respect  to  which  speed 
was  specially  important ;  and  they  might  continue  this 
process  of  pairing  off  their  proper  functions  as  carriers, 
until  they  should  be  little  more  than  the  owners  of  lines 
of  road  over  which  other  organizations  should  be  the 
carriers  of  freight,  and  on  terms  by  themselves  arbitrarily 
determined."  It  is  also  remarked  by  the  commission  that: 
"  The  complaint  of  excessive  charges  upon  express  trafHc 
has  been  common,  and  that  of  greater  charges  on  shorter 
hauls  has  been  sometimes  heard,  and  if  it  shall  be  held 


2/8  PUBLIC  REGULATION  OF  RAILWAYS. 

that  express  companies  are  not  controlled  by  the  rules  of 
fairness  and  equality  which  the  act  prescribes,  it  is  easy 
to  see  that  the  mischief  against  which  the  act  is  aimed 
may  reappear  and  be  enacted  with  impunity."  The  re- 
port also  calls  the  attention  of  Congress  to  the  propriety 
of  embracing  in  the  act  certain  other  carriers  who,  though 
they  conduct  their  transportation  over  railroad  lines,  are  so 
far  distinct  from  the  railroad  companies  proper,  as  probably 
not  to  be  included  in  the  existing  law.  For,  as  very  justly 
observed  :  "  The  act  has  not  changed  the  nature  or  the 
grasping  disposition  of  individuals  ;  it  has  only  interposed 
certain  restraints  which,  it  is  reasonable  to  assume,  will  be 
evaded  if  the  opportunity  shall  be  presented." 

At  the  last  session  of  Congress  bills  were  introduced 
looking  to  the  inclusion  of  express  companies,  sleeping- 
car  companies,  and  other  ancillary  carriers  within  the 
terms  of  the  Interstate  Commerce  Law.  But,  after  con- 
sideration, the  committee  to  whom  they  were  referred 
deemed  it  best  "  to  perfect  the  system  of  regulation  now 
on  the  statute-book,  rather  than  attempt  to  enlarge  it." 

The  express  companies  have  therefore,  for  the  present 
at  least,  been  left  free  to  conduct  their  interstate-trafific 
operations  according  to  their  own  views  of  expediency 
and  justice,  untrammelled  by  public  intervention. 


In  conclusion  it  may  be  remarked  that  representatives 
of  the  railway  interests  not  infrequently  assert  that  the 


OBSTACLES  IN   THE    WAY.  279 

public  demand  for  railway  regulation  is  the  work  of 
aspiring  politicians  in  search  of  a  popular  issue.  No 
doubt  demagogues  have  availed  themselves  of  public 
feeling  on  the  subject  to  promote  selfish  ends,  and  have 
magnified  evils  and  aggravated  antagonisms. 

But  the  mere  fact  of  its  popularity  indicates  a  sub- 
stantial basis  for  the  general  sentiment  on  the  question  ; 
and  the  light  that  has  been  thrown  upon  it  by  impartial 
investigations — with  the  advantage  in  presentation  always 
on  the  side  of  the  railways, — leaves  no  doubt  that  there 
are  real  and  great  evils  which  have  aroused  public 
feeling  and  call  for  public  intervention. 

The  principal  obstacles  in  the  way  of  proper  legislation 
upon  this  subject  are  lack  of  information,  and  lack  of 
confidence  (or  sometimes  over-confidence)  in  the  class  of 
men  who  should  be  best  able  to  impart  it — that  is,  the 
railway  ofificials.  To  investigate  the  sources  of  informa- 
tion upon  this  complex  problem,  to  analyze  conflicting 
testimony,  and  weigh  the  merits  of  opposing  arguments, 
requires  an  amount  of  labor  and  of  concentrated  thought 
which  in  the  course  of  an  ordinary  legislative  session  can- 
not easily  be  bestowed.  The  requisite  knowledge  must 
be  obtained  from  without,  and  naturally  and  properly  the 
railway  interest  will  have  its  representatives  on  hand  at 
every  session  ready  from  their  standpoint  to  enlighten 
the  legislative  mind.  Undiscriminating  condemnation  of 
this  class  of  persons  would  be  grossly  unjust  to  many 
fair-minded  men  who  are  to  be  found  among  them,  and 


28o  PUBLIC  REGULATION  OF  RAILWAYS. 

who  would  scorn  active  participation  in  the  dupHcity  of 
associates  with  whom  they  are  perhaps  involuntarily 
thrown.  But  it  is  not  to  be  denied  that  the  character, 
conduct,  and  methods  of  others  are  such  as  to  raise  in 
the  minds  of  many,  who  would  not  wittingly  do  injustice, 
the  most  profound  distrust  of  the  entire  class.  This  leads 
some  to  reject  as  mere  plausible  falsehoods,  arguments 
and  suggestions  which  should  have  the  most  careful  con- 
sideration, and  it  tends  to  produce,  and  has  frequently 
produced,  legislation  of  an  extreme  and  unwarrantable 
character.  On  the  other  hand,  in  all  legislative  bodies  will 
be  found  many  members  who  are  very  receptive  of  the 
class  of  arguments  which  lead  to  the  principle  of  en- 
tire non-interference,  and  to  the  defeat  of  all  attempts 
at  public  regulation. 

In  extenuation  of  the  course  too  frequently  pursued 
by  railway  representatives  to  influence  or  defeat  legisla- 
tive action,  should  be  mentioned  a  sentiment,  not  easy 
of  satisfactory  explanation,  perhaps,  but  deeply  rooted  in 
many  minds,  which  seems  to  regard  the  railway  corpora- 
tion as  the  natural  enemy  and  oppressor  of  the  masses  of 
the  people,  to  be  despoiled  and  warred  upon  whenever 
occasion  offers.  This  sentiment  is  responsible  for  the 
extravagant  and  questionable — not  to  say  unconscionable 
— verdicts  frequently  rendered  by  juries  against  railroad 
companies,  and  for  the  extreme  legislation  which  has 
sometimes  been  enacted  against  them. 

Public  animosity  towards  the  railways,  and  the  ques- 


SINCERE  EFFORTS.  2%\ 

tionable  defensive  methods  of  the  latter,  act  and  react 
upon  each  other,  and  both  are  aggravated.  A  sincere 
effort  to  arrive  at  truth  and  justice  on  the  one  hand,  and 
a  frank  disclosure  and  explanation  of  the  elements  of  the 
situation  on  the  other,  can  alone  produce  permanent  and 
satisfactory  results. 

THE   END. 


The  Science  of  the   Hand. 


"  To  him  the  hand  is  more  than  a  grammar ;  even 
a  full-flavored  "  Ollendorf "  would  not  contain  as  much 
language  as  is  to  be  found  within  the  limits  of  a  palm. 
Past,  present,  and  future  are  not  only  visible  to  his  un- 
erring eye,  but  the  whole  character  of  his  victim,  with  it3 
weaknesses  and  possible  failures  under  temptation,  as 
well  as  its  accomplished  deflections  from  the  paths  of 
virtue,  are  laid  bare  in  all  their  hideous  nakedness  before 
him." — London  Saturday  Review. 

"  Mr.  Heron-Allen  quotes  learnedly  from  many 
writers  in  defence  of  his  pet  science  ...  he  claims 
for  Cheirosophy  the  value  almost  of  prophetic  power, 
since  the  student  may  by  its  aid  predict  a  blow  by  an 
observation  of  the  tendencies  which  will  bring  about  a 
misfortune." — London  Daily  News. 


PUBLICATIONS  OF  G.  P.  PUTNAM'S  SONS. 
FOR   GENERAL   REFERENCE. 

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cial A  dvertiser. 

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